Developers have ignored medium-income housing

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Mohammed Muhana Al Qubaisi, Chairman of the Board of Manazel Real Estate, expects that the immediate future will witness the announcement of more huge real estate projects in Abu Dhabi.

Talking to Emirates Business, Al Qubaisi said the projects introduced over the past two years, which aim to pump 240,000 residential units into the capital’s market over four years, do not meet the actual needs of the market.

Al Qubaisi pointed out the lopsided growth of the market and said the problem with the market in Abu Dhabi, as well as in other emirates, has been the domination of luxury housing and a scarcity of housing for medium income groups. He said the luxury housing market might witness a recession over the next five years.

He also said Manazil’s investments in six countries stood at Dh40 billion and his company, though only two years old, had already returned record profits.

Observers have seen that the volume of real estate projects in Abu Dhabi over the past two years has exceeded the emirate’s actual needs, and some expect a recession once these projects are completed by 2009. Do you agree?

—I am sure that all the projects announced, whether by Aldar, Surouh, Manazel or other big companies, are still very small and do not cover more than 10 per cent of the demand. Abu Dhabi’s real estate market now lives in a state of great thirst for more projects in the medium housing category in particular, and the coming days will witness the announcement of projects beyond imagination.

I believe the emirate’s leadership is highly aware of the situation and would not allow the announcement of new projects if Abu Dhabi did not need them.

If we traced the rate of population growth in the emirate, which exceeds nine per cent a year, we would see that the volume of projects announced in various fields still falls short of requirements. I am certain that the government will intervene at the proper time to control the market and protect investors and companies, through a precise control and follow-up system. Also, bank guarantees of up to 25 per cent of real estate projects are imposed on companies to protect investors’ rights.

But there are many obstacles in the way of the real estate leap in Abu Dhabi, which lead to delays in most new projects.

—I do not deny such obstacles and to be afraid of them is a natural thing since we are in the beginning of an unprecedented real estate revival. I agree with you that there is a dearth in specialised technical labour as well as in the number of contracting companies compared to the volume of projects. Add to this the finance available, or lack thereof. However, these obstacles gradually go away as time goes by, with no losses because of government support.

Aldar, Surouh and Al Qudra have set up the “international crossing” to build giant real estate projects outside the country. Is Manazel thinking of forming alliances with other companies, especially after it announced projects in other Arab countries?

—The “international crossing” alliance is a pioneering and necessary idea, and I believe an alliance of real estate companies, whether in Abu Dhabi or Dubai, has become an utmost necessity.

Our company believes in this, so that we can complete big works and projects. The coming days will witness the signing of partnerships and alliance deals between Manazel and several large investment companies to affect a strategic alliance for executing a number of real estate projects according to state-of-the-art designs

and techniques.

We are convinced these alliances represent an important tool and means to move from the local to the international and global, and to execute big projects in record time. Through our alliances we will seek to develop a number of real estate projects comprising integrated commercial, residential, hotel and entertainment units.

With these alliances we will secure 20,000 residential units a year to be developed over five years, an average of 4,000 units a year.

Under the agreement draft, allied companies will help us find plots of land in suitable areas. We have agreed that Manazel will develop the land in stages in the form of construction, residential and integrated projects as of this year. I believe these projects will consolidate Manazil’s assets and lift its capital value, which achieves the goal set by the company to amplify shareholder money and add an extra value to the local economy.

Further, it represents an important step on the way to listing the company in local financial markets, which is a target set by Manazil’s administration once conditions and procedures governing the financial markets are finalised.

When will the listing of the company be officially announced?

—The company founders are insistent that the company is listed as a giant one so that it can contest in a market where only the largest can compete. Hence the decision to set the capital at Dh2.5bn. And, undoubtedly, such a volume of capital cannot be covered by a limited number of shareholders. There is the conviction that a chance should be given to as many investors and shareholders to contribute to the establishment of the company as possible.

Also, the aim was to push investors to set up development projects of benefit to the country and society rather than indirect investment in the bourse.

The company seeks to execute a host of procedures that are in line with the financial market laws. These are related to the organisation of shareholder records and finalisation of the rest of the listing conditions, as a prelude to requesting the listing of the company on the local share markets and obtaining approval from the bodies concerned to list during this year, especially with the record profits the company has made since its establishment.

Abu Dhabi is now witnessing an acute shortage of residential units for rent, and the number of people registering for allocation has exceeded 398,000. Everybody complains about high rents and dearth of housing. What is your comment on the scenario?

—The crisis is real and has worsened. Several studies expect that rents in Abu Dhabi and other emirates will increase over the coming years. The studies justify their forecast by saying that there is a constant demand, a high cost of construction materials, delays in the handover of several projects and a focus on luxury housing projects. I believe these forecasts are totally correct.

According to the studies, Abu Dhabi will still suffer because of growing demand for housing by 2012, when the majority of big real estate projects will be completed and 241,000 residential units will be pumped into the market. The coming years will see a bigger demand for medium housing, and I expect Abu Dhabi will have more real estate projects of medium housing at the expense of luxury housing over the next five years.

I believe medium housing will be the train that will lead the growth of the real estate sector in particular and that of the national economy in general. And I do not doubt for even one moment that the financial capability of medium-income people in Abu Dhabi and the UAE in general is characterised by renewal and sustained growth, especially in the light of the emirate’s adoption of open economic policies.

Add to this the fact that such a section (of society) has consumer aspirations as a result of the desire to better their living conditions and live in a higher level of luxury.

Also, in the UAE most economic sectors depend on expatriate manpower that, as a group, aims to save rather than consume. Therefore, they seek a medium-level house rather than a luxury one.

With due respect to your point of view, the share of medium housing only represents one per cent, at the best of times, of the total new real estate projects in Abu Dhabi and the country. Most companies do not go for it.

—I am not pessimistic and we have to take into account the duration of the real estate leap in the country when evaluating this. The real estate sector in the UAE is still young and has not reached full maturity. It is well known in most countries of the world that each real estate leap focuses in the beginning on meeting the needs of the rich who have the money. Hence the focus by real estate development companies on luxury and tourist housing, in an attempt to strengthen the financial position of companies and secure good financial returns for the shareholders.

After that the market reaches the maturity level, where the theory of supply and demand is active and it shows whether companies succeed or fail. I am sure the real estate market of Abu Dhabi and other emirates will witness a recession in luxury housing in five years time if the current domination of luxury housing units continues and the scarcity of medium housing is not addressed. I believe that over few years many companies will head for building medium housing projects. Manazel took the lead here.

What do you conclude from your experience as the only company in Abu Dhabi which ventured into medium-income housing?

—Our experience is very exciting and we are making unexpected profits. We see Manazil’s experience in real estate as a unique one, despite the short period. And it deserves a study from several perspectives, most prominently the company’s ability to select and precisely specify its investment policy, as well as its success in winning the confidence of investors and customers in just

eight months.

Add to this the company’s proper pricing of its units, which saved it from the accusations of greed and price-exaggeration dealt to other companies. The company also has the potential and ability to face market challenges, especially the rise in prices of construction materials, which have dire consequences on unit pricing. Although prices go up by 20 per cent a year, Manazel has not raised the prices of units even by one dirham.

How has Manazel faced the increased cost of construction materials in its projects?

—I think we have faced a real challenge. All elements of the construction sector in the country have become costlier compared to other areas of the world – whether it is land, cement, iron, labour wages or dearth of contracting companies which comply with quality criteria.

All this formed a big challenge to all real estate development companies. Nevertheless, Manazel has had an integrated vision of how to face this challenge and has invented unprecedented solutions that might not succeed in the case of several other companies. These include alliances and partnerships with companies that secure the land and construction prices at reasonable prices, as well as contracting companies and labour.

Manazel also concluded alliances with several financial institutions to secure finance of up to 90 per cent of the unit value with relatively low interests to facilitate purchase by investors.

Some have accused the company of avoiding executing more real estate projects while Abu Dhabi and other emirates need your projects.

—It is not true. Because the expansion in the local market is still limited. Real estate markets in most Middle East countries are witnessing growth in medium-level housing and companies that entered those markets have profited beyond imagination. Manazel has approved a five-year plan to invest Dh50bn in real estate projects in six Arab countries: the UAE, Tunisia, Jordan, Egypt, Saudi Arabia and Morocco.

Mohammed Muhana Al Qubaisi

Chairman of Manazel Real Estate

Mohammed Al Qubaisi holds a Bachelor of Science from Salem West Virginia University in the United States and has over 16 years of experience in investment, finance and management. In 1991 he joined the Abu Dhabi Investment Authority as an investment analyst.

He has also been the Assistant Director-General of Financial & Administrative Affairs Sector of the Abu Dhabi Chamber of Commerce and Industry, and the Director General of the Department of Planning & Economy. He is currently a member of the Boards of Directors of the Abu Dhabi Securities Market and of the Abu Dhabi Retirement Pension & Benefits Fund and member of the Joint US-UAE Free Trade Agreement Committee.

 
 
 
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