Focus will be on serviced land when market recovers
He likes the latest catch phrase – seeing green shoots. "There is a level of optimism that is pointing to the situation where the world economy is bottoming out at this point. From the world perspective, that will have a positive flow-on effect for us in the region," said Chris O'Donnell, CEO at Nakheel, in an exclusive with Emirates Business. "When the market recovers, the focus will be on people buying serviced land. Hence, the built form in our projects is definitely going to be linked to the provisions of infrastructure, which will be on an incremental basis." He spoke on contractors issues and current project priorities and updates at Nakheel.
What is your overview on the current global and economic scenario?
Looking at the Middle East, the region came into this turmoil fairly late but it does not appear to have been impacted like the US. Probably, this region will come out of this quicker. It is nominated by investment banks and economists as one of the four growth areas when things shift – the Middle East, India, China and South America.
In the UAE, the leadership has shown that there is support that flows through to all the emirates and ensures that it works as one. Besides, the new visa rules will be one of the foundations that will bring confidence back to the real estate sector.
In Dubai, the announcement of the Dh20 billion bond issue is a positive move by the government to get dirhams into the economy and get it moving. Another positive move by the government of Dubai is to spend wisely on infrastructure so that when the market turns, the city is ready to participate in growth again. Singapore is a good example of this situation.
You have recently consolidated projects into new portfolios. Will this continue?
When you look at the economic conditions that we have been through and are currently experiencing, as any prudent organisation would do, we consolidated our business under two groups. That is how we will operate a majority of those projects in the near future. If and when the market recovers, we would adjust the organisation again. It might not look like before but depending on the work that you have to do, there is always the option to adjust the organisation structure to meet the demand you have.
Market sources say the funding Nakheel received from the $10bn Dubai bonds issue stands at Dh2 billion. Is it true? What is the repayment period and phases of the loan?
The actual figure is confidential and so are all the other details. But yes, Nakheel is receiving funds.
Nakheel has been often accused of being slow to react in times of crises? What is your corporate strategy today given the large portfolio of projects?
We are continuing work on projects where we have commitments to customers. We have postponed certain projects.
This market, when it recovers, late this year and early 2010, will be focused on people buying serviced land. My definition of this example is The Palm Jumeirah. The infrastructure is 95 per cent complete. The services are ready to go and it is just a matter of connecting up to them. That will be the point of differentiation between what sells and does not sell when the market returns.
In The Palm Jumeirah, we have completed monorail operations and it is already operating for paying customers. Though it has yet to connect to the main RTA line by the tram service in Al Sufouh.
The Marina Residences will be handed over in a couple of months. Jumeirah Point is where we have serviced land and are selling. In terms of the Gateway Towers, we have finished car park but are not proceeding with the three towers at this point. We did not sell any of the buildings but will put those on hold. This is a good example of a project that will recommence, we will start selling again since we have built until level 14. Frond N do not have a contract for the construction of villas but it has the infrastructure till the commencement of Frond end.
What is happening on the Waterfront project?
At the Waterfront, our focus is on Badrah, the Canal District and Veneto, which are the clusters on serviced land. Clustering is very important from our perspective and that is how we are proceeding with Waterfront at this point. We have the design and master plans in place and some designs that are in advanced stages. But that is on hold until supply and demand allows us to launch more developments.
What we will be doing is incrementally developing the Waterfront. So where we will have services, we will move in that direction. On Sheikh Zayed Road, there are services that we can connect into and so we will move that way. Therefore, it will be that the built form is definitely going to be linked to the provisions of infrastructure, which will be on an incremental basis.
The overall concept master plan is the same; but yes, when you go into the design phases, there are some detail adjustments. The canal area within the Waterfront has been flooded in the first section. It will be linked to the construction of the Veneto. We will look to flood around different areas. But it is all related with supply and demand.
What is the update on Palm Jebel Ali?
It is definitely slowing. We are in discussions with Rera and customers. I hope we can come back in a couple of weeks with some answers.
And what is happening at Palm Deira?
Palm Deira is on hold. There is one bridge continuing at a slower pace. It has a substantial amount of infrastructure in place. When the market turns around, the land on the canal will be the serviced land that will be available for recommencement based on demand.
Is the Universe on hold?
The Universe is in the concept design stage. The master plan is still there but we never really got started on the design of that project. If we were to commence, it would be an incremental approach based on the surrounding projects. It is on hold.
What is happening on the much-awaited Jumeirah Village and Al Furjan? It has been reported that sub-developers are asking for payments without starting construction.
The construction work is progressing. We work very closely with sub-developers. If they are going ahead with their projects, then we are working with them to ensure they have good access and infrastructure when they complete. Jumeirah Village is well located and once the RTA flyovers are built, it will be one of the most-sought after places to live.
We are working closely with Rera where sub-developers have sold. If they are not progressing, then Rera gets involved and if they still cannot resolve issues, they will involve us in a tripartite as the master developer to see how we can find a solution.
Does Nakheel issue credit notes?
Nakheel does not have credit notes. I would caution any customer against anyone who is offering a Nakheel credit note.
Is it true that Nakheel has asked contractors to revise prices on their contracts by 30 per cent? What about issues of payments in these tough times?
We are definitely talking to our contractors to help them and ourselves through the current situation. We are at the stage of commercial settlements and negotiations. Rather than detail on percentages, it is a true statement to say that construction costs are falling and there is definitely a reduction. Part of our obligation to our customers is to ensure that we get them the best buildings. Hence, we are talking to our contractors to get cost-effective solutions
Contractors have told us that payments are being settled against shares in property. Is this an option that Nakheel is offering?
There is a whole range of commercial discussions that are going on. It varies considerably and there is no one percentage of cost savings when it comes to cost reductions. Each negotiation is individual and they are confidential. Yes, we are working with them and are happy with the co-operation. It is a necessary part of the market conditions. But it is not an option to offer shares in property.
So how are you handling the current concerns of your contractors?
Most contractors are now fairly comfortable with Nakheel and the way we operate. Yes, we have had a number of negotiations. Now that is behind us and we are looking forward as to how to go ahead and access an improving market.
Have you reduced performance bonds from ten to five per cent?
There is no general answer to that question. As part of the overall negotiations, we have looked at a whole myriad of solutions. If the project is nearing completion, then we would look at assisting our partner by lowering the performance bonds. There is no size that fits all. It depends on the overall negotiations with the contractors
Any short to medium strategy on payment plans?
We are basically listening to our customers coming to us with many requests and looking into adjusted payment plans to ease their burden. We have just announced an initiative, which will assist customers on four or five projects and help stimulate the real estate sector in Dubai.
Are you considering any joint ventures in the market?
We have existing joint ventures. I think working hand in hand with specific developers to get some projects on the way makes sense. For instance, we are working with Majid Al Futtaim on Mamzar Island on a mixed-use residential project.
Are you looking at more downsizing?
What Nakheel will do is to continually look at the business, the size it needs to be and our ideal organisational structure based on these factors. If the market turns around, we will adjust the organisation to those needs. We are at a point where the market is bottoming out. We are getting a bit more focused on what the future real estate market will be so that we are right at the forefront when it comes back.
And what about your focus on sustainability?
Our focus will continue. We started our sustainability journey two years ago and every project that we build has to meet those guidelines.
Will you award any contracts in the future?
No. We expect that by the end of the year or early 2010, we will see a mild recovery in the real estate market.
Will you relook at the IPO that you had announced last year?
I don't think that you will see a Nakheel IPO in 2009. Yes, we had said that we will look at an IPO this year. But given the current market conditions, September 2009 is a different world. We got to look at the improving market. When Singapore bounced back after the recession, it bounced back very strongly. So an IPO is something that we have looked at and will consider again given the right market conditions.
PROFILE:Chris O'Donnell CEO, Nakheel
O'Donnell directly oversees all company operations and developments, and plays a key role in the strategic direction of the company.
He has more than 30 years' experience in the property industry across a broad spectrum of areas, including construction, project management, development management, funds management and asset management.
Before joining Nakheel in June 2006, O'Donnell spent five years as Managing Director of Investa Property Group in Australia. He has also held other senior executive positions with prominent Australian organisations including Lend Lease, Leighton and Westpac Banking Corporation.
O'Donnell was appointed a Director of the Green Building Council of Australia in 2004 and, during that year, was recognised by the NSW Government Department of Energy Utilities and Sustainability and named as the Green Globe Ambassador.
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