High-end developer Zabeel Properties, like other real estate players in the region, has begun to feel the pinch of the credit crunch. The company, which is working on projects worth $5 billion (Dh18.36bn), does not expect to make any sales in the next three months and is re-evaluating projects that are at the planning stage.
In an exclusive interview with Emirates Business, CEO Robert Norton said the shortage of mortgages and the panic in the market had contributed to a slower property sector.
This had made the company "re-assess" two planned projects, including a hotel and resort development that was supposed to be designed by Hollywood star Brad Pitt.
"We are not planning any sales in the next three months," he said. "We had a couple of sales but it's very, very slow. It's not like before when we were selling 10 to 15 units a week. Now we are selling one or two units a month."
Despite the current problems, Norton said he was confident the market would start to pick up this year.
He said the company has no plans to cut jobs and would continue work on all projects that are in the execution phase.
"Any development that we have started is definitely going to be finished. There are six ongoing projects and they are continuing as normal."
Are you still able to sell?
In today's market, no. Sales are very slow for two reasons. First, is the mortgage crisis – there are no mortgages available. Second, there is still uncertainty in the market. Once people come out of this panic and uncertainty phase and they see clearly again, when everything is settled – probably in the next quarter – it'll be easier. Once the panic goes things will settle and we will know where we stand. Nobody today can say what is going to happen in the next six, 12 or 24 months. I believe in three to four months' time we'll be able to see things settling down and then people will be more confident. But you won't see the Dow Jones swing 900 points in one day. Investors won't be as confident as they were six months ago but there will be less uncertainty than there is today.
So you won't be expecting any upward trend in sales in the next few months?
We are not planning on any sales in the next three months. We had a couple of sales but it's very, very slow. It's not like before when we were selling 10 to 15 units a week. Now we are selling one or two units a month. That's the difference.
Are you worried about this situation?
No, not at all. I would be worried if I had just launched projects and we needed to sell, but we haven't. Our projects are very well down the road in terms of construction. Tiara Residence is 80 per cent sold. When you have a project that is 80 per cent sold – 160 units left out of 640 units – you are not going to be desperate to sell the remaining 20 per cent. Ottoman Palace does not have a huge number of units and it's very exclusive, the prices are very high. There are very large villas on the beach with resort amenities – an 85,000 sq ft spa, 16 restaurants and a 700m long beach on The Palm Jumeirah with only 38 units. We've sold five or six. There is a 430-room hotel as part of that development. On Porto Dubai we have 44 units – 21, or almost half, are sold. Again it is the same model – very exclusive in terms of the location and a very high-end product. We are not worried, we are not desperate and we are not panicking.
Are you pushing back some of your projects?
We are looking again at any project that we are planning to launch in terms of feasibility. We have two projects at the planning stage. There are going to be benefits in terms of the price of construction materials, so the cost plans that we will be producing in summer are going to be considerably lower than they are now. But that is also going to affect the prices of the units in terms of selling – they are going to be less, and the feasibility of hotels is probably going to be less, too. We have five strategic plots of land where we have yet to start development and planning phase, but we are not even looking at them right now. We are looking again at the whole mix.
What about those projects that are already under development?
Any development that we have started will definitely be finished. They are continuing as normal. We have six ongoing projects. But with developments that are on the drawing board we are looking at design, feasibility and cost plans. We will be looking at them again.
How badly are you being affected by the credit crunch?
We are affected in terms of sales and in terms of financing for projects that are at the planning stage. It'll be a lot more difficult to get project financing as it's going to be more expensive. But lenders and the banks are going to come back to the market. They have to, it's their business plan, but they'll have to be more selective and more expensive. On existing facilities they are not increasing their fees but on future facilities we know that they are going to. They don't need to tell us that.
Do you think prices will start to go down with the economy expected to slow further?
No, because the biggest mistake you can ever make in real estate is to chase the market. We will not reduce our prices to chase the market. It's not fair to our existing customers and it is not something that we would ever do. We don't need to.
How are you helping your customers in terms of financing?
We have been contacting our customers because we are going to start handing over units this month and the response that we are getting is that everything is fine. They say their mortgages have been set up and they are not looking for more mortgages.
Zabeel Properties in June announced details of an 800-room hotel and leisure development for Dubai and confirmed the appointment of Los Angeles-based architecture firm Graft, whose team of design consultants was to include Hollywood actor Brad Pitt. What's the status of this project?
We are not going to talk about that.
Is it still in the pipeline?
Maybe, but this is one of the projects that's at the planning phase so we are re-examining it.
Some say the bubble has finally burst.
If you have been in Dubai for a while you'll have been hearing that for the last 20 years, so it depends on your mentality if you want to listen to this kind of thing or not.
What will enable Dubai to recover from the havoc created by the liquidity crisis?
Confidence, simply confidence. Drive around Dubai and look at what's happening. Look at what Dubai has achieved, it is incredible. This is just another challenge that Dubai is facing. Dubai has faced challenges before. It faced challenges in the Gulf wars and when the price of oil was $9 a barrel, these are challenges that Dubai has faced in the past and overcome. The fundamentals and models that Dubai has built are extremely healthy. And it's going to continue.
According to HSBC's calculations, Downtown Burj Dubai and The Palm Jumeirah are likely to be the hardest hit developments, while some analysts say there could be an oversupply on the luxury property market. What is your view?
I don't think there is an oversupply in Dubai. What we are experiencing now is just because of the credit market. I don't know what makes analysts say that but I don't believe it. I think there is a shortage of very high-end properties in Dubai now and will be in the coming years, and we are focusing on filling that niche.
What is the total value of your projects?
Committed development and construction funds, not including land, amount to just over $5bn, or around Dh18bn.
What is your view of the outlook for the property sector?
We are very positive and are focusing on two things. First is delivery. We have two projects that we are going to deliver in the next six to seven months – Tiara Residence and the Ottoman Palace. On January 15 we will deliver two buildings and at the end of January we will deliver the balance. The completion of the entire development will take place in March when the beach club, restaurant and gymnasium open. Ottoman will be completed in June this year. We are also going to focus on improving efficiency and taking advantage of what's happening in the world today.
What's the ultimate challenge in today's market?
Sales, due to the mortgage situation and the difficulty in financing. We are not looking for project finance right now because we are not launching new projects. We are totally reassessing everything and it could take six, 12, 18 or 24 months. We have to be realistic on where the market is today and where is it heading in 12 months time. The world has changed in the past two months and Dubai has changed in the past six weeks.
PROFILE: Robert Norton CEO, Zabeel Properties
Norton, 37, is CEO of Dubai-based boutique property developer, Zabeel Properties. He leads the strategic direction of the company and personally oversees all operations, ensuring that every development meets the company's world-class standards, will stand the test of time and enhances the environment and community in which it is located.
Dubai has been Robert's home for almost 30 years – during his formative years of schooling and more recently has been playing his part in the incredible growth and development of the city-state. He completed his schooling with a degree in marketing and finance at the University of Bournemouth in the UK, thereafter, embarking on a career in design, before founding his own communications company in 2000. With 12 years' experience in design, marketing and development management in the UAE property industry behind him, Robert went on to join Zabeel Investments (the parent company of Zabeel Properties) in August 2006.
Throughout his career Robert has used his extensive knowledge and expertise of design and marketing to contribute significant developments to Dubai's growth story.
He has played an instrumental role in many large transactions, beginning with his involvement in some of Dubai's first freehold developments.
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