Off Plan Develop ment: What Now For Sales? MENARES Conference e 3 rd October, 2010
Our report covers a number of topic cs, but I would like to focus on solutions today focus on solutions today Covered d Topics � Greenfield economies ￚ What buyers look for y ￚ What developers look for ￚ How to resolve the differences The ideas I will present today are not ground breaking. Many are t d b ki M � Economies with legacy off-plan sales obvious to market participants. It is implementation that is important. important Our report looks at a number of other topics: � How off-plan sales in Dubai have fallen since 2008 8 � How the economic crises has treated market partic cipants � Lessons from Western markets 2 Please read important disclaimer at the end of the presentation
Buyers need to trust that any prope erty they buy off-plan will be delivered be delivered Buyer Requirements � Developers are the first stakeholder that can � Developers are the first stakeholder that can have an effect on a buyer’s trust position ￚ Buyers need to get real information about the progress of any construction project ￚ Developers need to spend some time on proper reporting, not merely pictures and a short blurb on Transparency Recourse Fro m progress From Developer Legal Framewo ork ￚ Variations and changes to an extent are usual, so developers should not be timid about informing or developers should not be timid about informing or involving buyers ￚ Telling buyers of changing timelines allows them to plan also � The legal framework needs to be clear and � The legal framework needs to be clear and complete ￚ Buyers need to be able to rely not just on the law, but its Due Diligence By application when they have legitimate reasons for suing a developer a developer Buyer ￚ Application must be even and timely � Finally, buyers needs to carry out their own due diligence g ￚ Understand the market including demand and supply factors, availability of financing, how adverse market conditions will affect their property values The right infrastructure can instil trust, but buyer The right infrastructure can instil trust, but buyer rs rs ￚ Read the contract being entered into need to do their own homework also need to do their own homework also need to do their own homework also need to do their own homework also ￚ Buyers need to own the risk they undertake and if an investment fails, they will be the ones taking the loss 3 Please read important disclaimer at the end of the presentation
Developers need to ensure they ade equately understand the risks they are taking in a relatively s risks they are taking in a relatively s stable environment stable environment Risk vs Return Ret urn At some point we pass p p the optimal level of risk Risk Return Return Risk Risk Reducing Risk in Environment Equity Financial Leverage Operational Leverage Stable Processes No Hidden Sales Commercial Buyers Costs Lower Employee Lower Employee The Right People The Right People Experience Costs Valued Developers need to find the optimal ris Developers need to find the optimal ris sk level, not look at returns in isolation sk level, not look at returns in isolation 4 Please read important disclaimer at the end of the presentation
Off-plan sales are key to developme ent activities, but application matters more than strat application matters more than strat egy egy Competing Needs Resolution Framework for Off-Plan Sales Framework for Off-Plan Sales � All stakeholders need to be realistic � All stakeholders need to be realistic ￚ Buyers and seller have to focus on the long term, as this is not a trading asset; it is a buy and hold asset ￚ Developers need equity and buyers need Developers need equity and buyers need Buyers a deposits ulatory ￚ Real due diligence has to happen including Failed looking at market dynamics, understanding Projects j Larger g the reasons for buying and reading the y g g and Regu and Deve Deposits Fund contracts � Off-plan can help production and Trust reduce risk Real Sales Equity Equity Contracts Contracts ￚ elopers Legal Framework Legal Framework Less leverage used reducing funding costs Less leverage used reducing funding costs Legal ￚ Allows testing of market attractiveness of product Trust in Developer � Financial institutes need to act as a check and balance within the market ￚ Institutional money needs to understand developments better before committing Developer Supply and ￚ Mortgage providers need to understand the Delivery and Demand risks associated with the buyer and Quality Dynamics developer � The legal environment must be g The Market The Market stable and enforceable to ensure recourse is available 5 Please read important disclaimer at the end of the presentation
Times may remain tough for some y years, but inaction and awaiting higher valuations will com awaiting higher valuations will com pound problems pound problems � It doesn’t matter how big your slice is if the whole pie becomes smaller the whole pie becomes smaller ￚ Each day decisions are delayed, the pie becomes smaller as capital is wasted � � Decisions need to be made and action Decisions need to be made and action taken quickly ￚ Developer’s have to start this process, as they are in the middle as they are in the middle ￚ Every decision delayed just means two decisions will have to be made tomorrow � Lenders must realise they are Lenders must realise they are stakeholders in the process and should either: ￚ Facilitate completion, which may require Facilitate completion, which may require restructuring Robust Financial ￚ Models Exit their position, which may mean Tools For Good selling at a discount Decision Decision Communication � Contractors may have to forgo their Making profits until the end Buyer Groups � Developers must realise their equity is p q y Applied Lega A li d L l l the first loss piece Framework 6 Please read important disclaimer at the end of the presentation
The full report and this presentation n will be available on our website with our other reports (www website with our other reports (www w IsthmusPartners ae) w.IsthmusPartners.ae) 7 Please read important disclaimer at the end of the presentation
Thank you f Thank you f for listening for listening Any que Any que estions? estions? 8
Contact Details
Contact Details Please contact us if you have any questions on o our services. Our contact details are: Isthmus Partners FZC PO Box 65736 D b i Dubai United Arab Emirates Telephone: +971 4 312 4908 Telephone: +971 4 312 4908 Website: www.ist thmuspartners.ae Email details: General e-mail: General e mail: info@is info@is sthmuspartners.ae sthmuspartners.ae Sukhdev Hansra, Partner shansra a@isthmuspartners.ae Javier Cervino, CFA, Partner Javier Cervino, CFA, Partner jcervino jcervino o@isthmuspartners.ae o@isthmuspartners.ae Anastasia Kozyraki, CFA, Partner akozyra aki@isthmuspartners.ae 10 Please read important disclaimer at the end of the presentation
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