Infrastructure The Buzzword For KM
Friday, 06 August 2010
Dubai: By steadfastly sticking to a handful of projects when every other developer seemed to be going for as many as possible during the boom phase, KM Properties is now eyeing the end game.
All three of the developer's existing projects in Business Bay will be completed over the next 18 to 24 months.
First to get past the finish line will be the mixed-use Park Lane Office Tower (which will also feature a hotel on its top floors), followed by the B2B Office Tower and Tamani Arts Offices.
"We are consciously trying for our construction schedules to run parallel with the completion of infrastructure for the master-development as a whole," said Sanjeet Joher, group CEO at KM Properties.
"Everyone involved, including the investors in our projects, appreciate the need to move in sync."
The strategy makes a lot of sense as it avoids the pitfalls of completing an individual project while the rest of the cluster plays catch-up. The problem has plagued a couple of other master-developments in the city, which only fuelled investor and buyer ire at having to move into half-built locations.
Payments position
On another score, too, KM Properties seems to be better-placed than its peers. A significant portion of payments due from investors were paid in between 2006 and just before the downturn hit in the last quarter of 2008.
"I would put the payments made as between 60 to 70 per cent, and this is a further incentive for our investors to remain committed to the developments," said Joher.
"Cancellations, if any, at the Park Lane would not go more than 2 to 3 per cent, though we do expect 10 to 15 per cent at Tamani Arts Offices. But these are negligible in the context of what is being recorded at other projects in the city."
One factor that has decidedly worked in KM Properties' favour was its selling price at the time on all three projects. If Park Lane was going for an average of Dh1,500 a square foot, it was Dh1,700 a square foot at the B2B Office Tower and Dh2,000 at Tamani Arts Offices. Against these rates, comparable developments in the same location were asking for — and getting — values in excess of Dh3,000 at the time.
"From where the market is now, all of our decisions taken in the past have been vindicated," said Joher. "There never was a spate of off-plan projects from our side, we maintained a highly competitive pricing policy on our launches and we were able to bring on financially stable investors into these right from the beginning."
But Joher disputes the contention that developers with projects on the ground benefit from the reduced cost of construction. "It does not work that way as the contracts were awarded much earlier, the purchase of materials and services from the sub-contractors have already been committed and, in a lot of cases, delivered," he added.
Stable land bank
"In such situations, you cannot reduce your project costs with retroactive effect. Of course, it's a different situation if a project was taken up from scratch these days."
Incidentally, Al Rostamani Pegel is the primary contractor on all three of KM Properties projects in Business Bay.
All through the downturn, KM Properties has maintained its land bank in Dubai, which includes a sizeable presence in Nakheel's Jumeirah Village master-development.
"No question of diluting our land bank, our intention has always been to be a long-term operator in the market," the CEO said. "Maintaining our land interests is part of what we stand for."
But the developer will not take on any new projects — "There's a lot on our plate already to execute."
However, Joher sees prospects for the hospitality division in an advisory and management capacity for third-party hotel projects.
"Or we could come on board to assist those developers with existing properties who want to create a revenue stream from turning it into a hotel," said Joher. "This way we get to capitalise on what we already have and take it many steps further."
Underlying KM Properties' short-term planning is a belief that the local market will rebound. Joher gives the sentiment a foundation: "Not all of the projects that were announced in the past are going to get built, but what will be delivered should find buyers. Anywhere between 150,000 to 200,000 units over the next three to four years can get easily absorbed. A rebound will happen."
Business Bay stands to gain
On-going projects in Business Bay could be the prime beneficiary as and when the Dubai Government's real estate funding initiative, Tayseer, kicks up a gear or two. The programme — recently launched by the Land Department and Real Estate Regulatory Agency (Rera) — has earmarked developments in Business Bay, Dubai Marina and Jumeirah Lakes Towers as priorities.
"Dubai Marina is in a much advanced phase as far as its projects go, and to a lesser extent this is the case in JLT as well, which leaves Business Bay," said Sanjeet Joher, group CEO at KM Properties.
"Obviously, with development funding through Tayseer starting to flow into the system, we expect a gradual pick-up in sales and leasing interest across Business Bay properties."
As to how and where the Tayseer funding goes will be clear a few weeks from now. Lending institutions coming on board, with Emirates Islamic Bank being the first to sign on, and on a parallel track there will be the short-listing of individual projects that are to be supported.
Tayseer guidelines for a project to be considered are that it should be 60 per cent completed and sold and should have a sizable infrastructure framework in place. But industry analysts caution that activity on the buyers' side will take time to manifest itself. "It's still early as the programme is yet to be finalised," said Sa'ad Allah Al Abed, senior consultant at Colliers International, on whether the Business Bay in itself could end up seeing an immediate uptick in interest.
Colliers in its latest update on Dubai's real estate trends reckons around 33,000 units to be released onto the market by the end of the year, scaled down from its earlier estimate of 41,000 units. This is in line with further project delays or rescheduling. "However, given Dubai's history so far, a large number of these units may not be delivered on time and may cross over into 2011," the report said.
Within Business Bay, there has of late been some leasing activity. Al Abed puts this in perspective: "On the residential side, units are being occupied as rents offered are discounted compared to neighbouring developments. However, vacancy rates remain high.
"On the commercial side, buildings offered for lease remain empty with no tenants. Business Bay remains, by and large, a construction site with undeveloped infrastructure, creating a major leasing hurdle."
In the coming weeks and months, the Tayseer programme by building up momentum intends to change all that.
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