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Long-term view can beat short-term crisis


By Markus Giebel

We live in uncertain times. Here in Dubai and across the world, that lack of certainty about the future, and especially the outlook for the global economy, is exacerbating current market conditions. Because we do not know what tomorrow holds, we invest less and take fewer risks. Such a response is understandable and often the prudent course, at least in the short term. Despite today's challenges, however, companies need to take a long-term view. This storm will pass, and firms that invest in the future today will emerge stronger when the clouds finally part.

Not all companies, of course, can at present afford to invest in their growth. But those that are well capitalised and that have strong balance sheets must make the most of this moment. Firms operating in resilient sectors within growth markets, in particular, should seize this signal opportunity.

Deyaar, the company that I run, happens to fit in all those categories, which explains why we remain confident. We continue to believe that the real estate sector in Dubai and the wider region is poised for sustained expansion.

While speculation has unquestionably partly driven demand in the regional property sector over the past decade, that alone hardly accounts for the breakneck expansion we have seen for so many years. The GCC population is currently growing at an average annual rate of above two per cent. This is extremely high growth – compared to less than one per cent annual population growth in the US, UK, China and France, and just over one per cent in India.

Just as important, roughly one-third of the Gulf's total population is under the age of 15. The regional supply-demand dynamic is primarily informed by the need for homes, offices and retail space to meet the needs of this young, fast-growing population. Lower oil prices do not change that fact, nor does the global financial crisis. That said, in some markets, such as Dubai, there is now a need to manage supply to ensure price equilibrium in the short to medium term. Worldwide, this is the norm: Governments almost everywhere work with public and private-sector developers to ensure property markets do not overheat and that stability is maintained. This is what is now happening in Dubai, under the supervision of the Advisory Council, a recently formed Dubai Government body.

While governments have an important role to play in ensuring equilibrium, now more than ever before, it is critical for real estate companies to closely scrutinise their cash flows, adapt their product portfolios and evaluate their non-core businesses. The time is right for companies to install market monitoring teams in order to effectively avert any possible imbalances in resource allocation.

This is the moment for companies to go back to basics.

Deyaar, for instance, has drawn a clear action plan for the next year, taking all the above factors into consideration. The company has also recognised the importance of refining and further developing its customer service model and is actively looking for new opportunities that are emerging in the wider market.

Given the region's strong fundamentals and the larger demand-supply imbalance, companies that take a proactive approach now will build the foundation for long-term success and assume a leading position tomorrow.

Product diversification will, of course, play a vital role in the success or failure of real estate firms in times to come. This requires firms to be innovative in identifying opportunities, while retaining their core business focus.

Dubai property sector is in a transitional phase, and strategic global expansion will be a key to ensuring the diversification of revenues and a balanced portfolio of projects. Markets driven by a combination of a large and growing economy and strong demographics, such as Saudi Arabia and India, clearly offer substantial potential. Such opportunities exist elsewhere, too, and they must also be seized. Warren Buffett, the founder of Berkshire Hathaway and one of the world's most successful businessmen, famously remarked that you should never invest in a business that you cannot understand. That advice has never been more apt.

The current unraveling of the global economy is largely a result of the wildly ambitious, and incredibly complex, structuring of financial services and products. Subprime mortgages, for instance, were bundled and sold, then rebundled and sold again – achieving epic values with virtually no genuine security. Despite ever-rising stakes, few actually understood the bottom-line value of the investments that were being made. By the time they did, it was too late.

We have learned some hard lessons since then. We are all paying a price for those mistakes. But we must not focus on the past, or be paralysed by uncertainty. Dubai and the wider region remain strong and growth will continue. Today we need to identify the longer-term opportunities and adapt our businesses to make the most of this moment. When we have the fundamentals right, the rest will follow.

-The author is the CEO of Deyaar