ETA Star Property Developers, part of the ETA–Ascon Group, is planning to enter the middle-class and lower-income housing segment in Dubai, a senior company executive said. “We are talking to one of the master developers for what we consider as middle-income housing in Dubai. However, the government has to make land available at a cheaper rate. As and when they do, we will enter into mass housing,” ETA Star Executive Director Abid A Junaid told
Emirates Business. The company will develop projects worth Dh4.5 billion and hand over 200 residential apartments this year, he said.
Excerpts from an interview
Is your focus still on Dubai, or do you plan to scout other emirates?
We have launched close to 30 freehold projects and there are plans to develop a bank of five million square feet of gross floor area. Although we will be focusing on Dubai, we are also looking at Abu Dhabi. This year we will give equal attention to the capital and launch projects there.
Why aren’t you launching master developments in the UAE despite having knowledge and expertise in this segment?
Barring developers in Dubailand, only government-related companies are undertaking master developments in Dubai. At the moment, we don’t have any such plans in the emirate, but it is an option we are looking at. In overseas markets, we are doing master developments. We are currently doing one in Chennai, India, where we have acquired more than 500 acres of land, while in Kolkata and Coimbatore we have just picked up 170 acres and 100 acres, respectively.
What are your investment plans for 2008 and 2009?
This year we plan to develop about three million square feet of gross floor area. This will give you an idea of our developments. Our investments in 2009 and so forth will depend on how much land we procure for launching projects. Simultaneously, we will buy land in other master developments and communities that are coming up. In 2009, we will do close to three million square foot of development.
On what basis do you decide whether to launch residential or commercial projects?
Earlier, master developers were not mentioning the land usage, but today most of them are. So when you buy a plot you know whether it will be for commercial or residential use. But whether we buy a commercial or residential plot depends on the community.
Do you believe there is an urgent need for the UAE to harmonise its property laws?
Abu Dhabi and Dubai have well-defined property laws. Other emirates have laws that are different from these two emirates. You cannot expect a federal law to be passed as laws concerning property ownership come under each emirate’s jurisdiction.
Do you prefer leasehold to freehold when it comes to launching projects?
As a part of our business plan, we would like to have a certain revenue stream from our rental or leasehold properties. So we are continuing to develop properties in non-freehold areas, which we will lease out. It will be our regular revenue stream because what we are doing in a freehold development is sell and exit, while in leasehold you build and keep the property for rental returns. Currently, we are in the process of building seven to eight properties. We expect a minimum of 20 per cent of our profits to come from leasehold properties. The rest will come from our freehold sales.
Is the new maintenance fee law a cause of worry for developers?
Generally, building owners are paying towards the upkeep of their property. In order to make their maintenance fee attractive, some developers charge a very low fee for a couple of years. But when they exit by handing over to an association, the maintenance fee may jump from x to 3x. In our case, we are not doing that. From day one, we are honest and straightforward in terms of what the maintenance fee is.
Hiring experienced and talented people in the real estate sector is becoming an arduous task. Has it led to an increase in salaries and, therefore, your company’s net expenses?
Actually, hiring experienced people in any sector is becoming a difficult task. There is a boom in property development world over, but fortunately for us our core expertise is in construction. We have employed a substantial number of experienced and knowledgeable people. Though we face the same problems as everybody else does, we have been able to tide over the problem.
Expatriates in the UAE are facing problems in terms of cost of living and so there has been a general increase in salaries. Moreover, we have to attract talent from traditional markets such as India, where people are not necessarily available.
Do you believe in incorporating high-end technology in your apartments and, if so, does it offer an edge over competition or a way to market the property?
We are providing intelligent homes in our projects, but we don’t believe in technology for the sake of technology. If that is the case, then it is purely a marketing gimmick. We believe technology should be functional, must have utility value and fulfil the everyday requirements of residents. That is the technology we are incorporating.
Your joint venture partners are launching their own projects. Is that leading to any conflict of interest?
It is a free market. As we are doing our own projects, our joint venture partners are also running their own plans. We don’t see any conflict of interest. Moreover, our joint venture businesses have some specific mandates within which they operate. If you look at Star Giga, we are focusing on middle-income housing.
So will you enter middle-income housing sector on your own?
Not in Ajman and not in the Emirates City [project]. It could be anywhere else. We are talking to one of the master developers in Dubai for what we consider middle-income housing. However, the government has to make land available at a cheaper rate. As and when they do, we will certainly enter into mass housing.
Does it benefit being in this segment and are returns higher?
If you consider return on investments, it is not the best thing to get into because margins are thin, prices are low and you need to get into the volumes business. If you look at our Ajman project, we are doing close to 4,000 units. However, we don’t want to confine ourselves into one segment of the property development space such as the high end. We want to be in other ends as well.
Which new markets do you plan to enter this year?
We are on the verge of finalising some land transactions in Vietnam and will be focusing on Ho Chi Minh City, where we will be handling primarily residential and some commercial projects. In Malaysia, we have already registered our ETA Star office and are participating in urban renewal authority (URA) projects. We are also hopeful to break ground there, but we are not yet looking at Indonesia and Philippines.
Will you enter these markets alone, or with a local partner?
It will be ideal for us to enter into partnerships with people whom we know. But in the absence of a known partner, whom we can trust, it is better for us to be on our own. However, we are open to partnerships in these markets.
How much debt are you planning to raise to fund your projects?
Our requirement for funds is met through internal resources, pre-selling projects and debt. The gross development value of our projects to be launched this year will be Dh4.5 billion. Our requirements will be met through the three ways I have mentioned.
Is there any future plan to become a listed entity?
We are looking at listing ETA Star in India, but not in Dubai for the time being. We have consultants working on it, and will be listing in late 2009 or early 2010. Generally, going public must be only to raise equity. And you raise equity only when you have reached a certain level of leverage in terms of debt and when other sources of finance have dried up. Our gearing ratio is well within international accounting standards. Within our equity structure, we have the capacity to raise more debt and the capacity to grow as well.
Do you plan to acquire any international property developers to consolidate your growth in the overseas market?
No, we believe in organic growth. We believe this business can be started from scratch and we have the knowledge and expertise. We have done that in Dubai and we will do it in overseas markets.
Is it the right time to buy property in Dubai? Where do you see the property market moving in the next three years?
Supply and demand will be fairly balanced and we don’t see any let-up in prices. Only on the price front there will be an increase as cost of living, land prices and construction costs soar. Today is the right time to buy in relation to what is going to happen in the next three years, although three years back was the right time to buy in relation to what prices are today.
Abid A Junaid
Executive Director, ETA Star Property Developers
Abid Junaid is the Executive Director of both, ETA Star Property Developers and Ascon Group, which are divisions of the ETA-Ascon Group of Companies. Having worked for the group for the last 19 years, Junaid’s primary responsibilities include business development, identification of new business opportunities and strategic partnerships with international companies. Under his leadership, ETA Star has made giant strides. The company now plans to launch properties in other countries in the Middle East and the sub-continent.
ETA Star to invest Dh4.5bn in 2008