Sherwoods to write off Dh10m as bad debts, change business model
Sherwoods Independent Property Consultants, a Dubai-based brokerage firm, claims it has more than Dh10 million as outstanding commission from UAE developers, which it has decided to write off as bad debts, a top company executive has revealed.
"We now have accumulated more than Dh10m as bad debts from developers. We have decided to write it off and start afresh," Iseeb Rehman, Managing Director, Sherwoods, told Emirates Business.
"The bad debts that we have seen has largely been for off-plan properties and not on ready properties," he added.
Although payments and collections in the real estate market were previously based on "trust, faith and relationship", Rehman says his company will now put in place policies that ensure that they receive payments on time.
"Going forward in 2010 for new developers that we sign on we will ensure the commission amount is adjusted in the reservation contract signed between the buyer and the developer," he said.
Asked if Sherwoods was looking to restructure, Rehman said: "We are looking to re-align our activities and how we pay our costs, how the business is structured and we are going to be changing our business model."
What measures are you taking to ensure that your clients are not defaulting?
Today, the market situation demands more compassion and understanding. Nobody can take all the precautions. No one today can take enough measures to prevent defaults. That is an individual, personal issue. We have not had many issues with landlords/tenants defaulting, barring a few cases.
Some landlords have been very understanding of the market situation and have allowed for further negotiations. They have either made the payment mode more flexible or lowered the rents. However, there have been instances when landlords have not been accommodating at all. But they are in minority.
We are taking some internal steps. Firstly, before a seller and buyer enter into a memorandum of understanding, we due diligence to understand what is the time frame that will take for the buyer to get a mortgage in place. Secondly, we make sure that both the signing parties are present physically in the country before they sign the agreement. This has saved us quite a few contracts.
Further, we are also taking information from Emcredit with regards to a potential tenant and obtain his history completely. Some of our agents are doing a thorough work and they are able to assess whether the buyer or the seller will be able to keep the time table. However, all these measures cannot be enough as there is one big hindrance, which is the "unknown". Delays happen due to many unknown reasons and one cannot take enough measures to ensure that clients are not defaulting.
Are there any new forms introduced by the Real Estate Regulatory Agency (Rera)?
We are still waiting for some new forms, such as the seller-agency contract. We would love to have it soon since we have had to adapt to a few things ourselves within the contracts. They have to be comprehensive since the job profile of an agent is a lot more important today than just selling.
Have you changed or added new clauses in your contracts with clients?
Yes, we do regularly modify our contracts. Currently, we are looking at more exclusive seller agency contracts where the client is looking to retain you for your services. Generally, we have not made too many new inclusions on the sales contracts than just the usual ones, although we do modify them every now and then.
Has there been an increase in turnover of agents?
There is no stopping the real estate agent to move around trying to find a good job. I don't know what will stop them. Turnover of agents has been high within the brokerage industry. It usually boils down to where an agent feels comfortable to work. The new visa rule will not hinder or restrict agents to move around looking for new jobs.
Do you still believe there is a dearth of good talent in the market?
There is going to be a big vacuum left with respect to the knowledge and expertise that is available with real estate agents in the market. We are finding that a lot of people who had good experience and knowledge have moved onto markets where the real estate market is still moving. There is definitely a shortage of talented agents in the market today.
Is there more co-operation happening among brokerage companies today than previously?
If there is a good synergy between two broker firms, the arrangement can be beneficial. This is how it works in mature markets. We ourselves work with some agents from other firms. That is simply because they may have a stock that we don't have. Hence these kinds of exchanges must happen regularly. It would make sense to have a multi-listing system but that is a long way off.
What is the total outstanding commissions due to Sherwoods from your clients?
It is substantial. We now have over Dh10m of bad debts from developers in the past few years. Currently, we are looking to write it off as of the end of last year. We want to start afresh.
What reasons are developers citing for not paying your commissions?
Some developers are yet to decide whether they need to go ahead with the project or not. But that is not our business, as far as we believe the transaction has been concluded and they are having somebody else's money with them.
Is your team going aggressive on collecting commissions/payments?
We are now progressing on this a bit further. Right now we have to be very aggressive on all our plans.
What is the legal recourse for you?
Just to give you an idea, most of the agents' grievances will be heard in an arbitration court. Arbitration itself costs you a substantial amount of money, as it is a percentage of the claim amount. Arbitration is no guarantee for us to get back our money. So if arbitration fails then we go to the next level. We have not taken this route yet. It is about good money running after bad money.
Where do you think as a broker firm you went wrong and have incurred bad debt?
Previously, our collections and mode of payments were based on trust, faith and the relationship that we shared with the developer. Now, we propose to base this on actual execution and laying down certain policies and not deviate from it.
Having said that, developers have been in a tight situation as well. I think a lot of developers will get back to business soon but it has been tough on them as much as the rest of the sectors in the real estate.
Bank finances have been pulled away. Some of the developers have had their own ways of dealing with recession. We, as a broker, would like to understand that.
Is Rera doing enough to support the brokerage industry?
At this moment, there needs to be a fair level playing field for the developer, the purchaser and the agent. We would like issues of the broker firms to be heard more as it is a tough market today and selling is not easy as it used to be.
Are you looking to restructure?
We are looking to re-align our activities and how we pay our costs, how the business is structured and we are going to change our business model. We are working on it at the moment and we are quite excited. It goes in line with how the market is working.
How many agents do you have at the moment? Are you looking to diversify your services?
We have around 20 agents across the UAE. Our office in Ras Al Khaimah is doing well. It is our Dubai office that we have to get our corporate team together. We are looking to re-align our business activities and six months down the line we will have a different story to tell. As a policy, we will definitely look more with respect to asset management, although brokerage will be our key focus area. But we will be re-aligning our services.
When do you expect the realty sector to recover?
Certainly, the market is now transcending. It is between an emerging market and an established market. We are today much more clear about regulations in the real estate market.
For an established market we need a robust regulatory system, a strong code of ethics. However, there still needs to be a more smooth process of concluding a transaction while buying and selling a property. There needs to be a good expanded guideline for the real estate market.
As a broker firm, we expect that from the point when a buyer or seller enters into a contract to the point of closing a transaction, there needs to be standards set. The real estate market today has become a lot more robust. The volatility has clearly gone.
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