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Brokerage firms report double-digit losses |
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August 20 2009
Brokerage firms in the UAE have recorded significant declines in
revenues in the past 12 months owing to the slowdown in the real estate
sector, with losses running into high double-digits, real estate
brokerage companies told Emirates Business.
Elysian
Real Estate, a Dubai-based brokerage firm, said there was a 60 per cent
decline in sales commission earnings as it has recorded a drop in sales
volumes by almost 50 per cent.
"We were making 20 to 40 sales
deals a month last year. Now we are doing about 10 to 20 in a month,"
said Robert Macnair, Sales Director, Elysian Real Estate.
"Our
commission earnings last year were about Dh4 million to Dh6m per month.
That has dropped to a monthly earnings of Dh2m to Dh2.5m," he said.
On
the leasing front, Elysian Real Estate was concluding an average of 30
deals a month at this time last year. "Now, however, that has dropped
to about an average of 15 deals a month," said Macnair.
Harbor
Real Estate said its profits dipped 38 per cent during the period
between the first half of 2008 and the first half of 2009. "Our
revenues dropped approximately 40 per cent over the past 12 months.
Sales volumes have dropped approximately 70 per cent," said Mohanad
Alwadiya, Managing Director, Harbor Real Estate.
Peter Penhall,
CEO, Gowealthy, also said due to the overall decline in investor
activity within the real estate sector, his company has experienced a
decline in its trading levels.
"We have seen a drop in trading
levels to the tune of 40 to 50 per cent from previous averages.
However, this negative trend should be viewed against the backdrop of
abnormal increases in trading volumes during 2008. The real correlation
would be current trading vis-à-vis 2007 levels of trading."
Rajesh
Kumar Krishna, Managing Director of UAE-based Indiana Real Estate, said
his company has recorded a drop of about 70 per cent in revenues in the
past 12 months.
"This includes our profits and commission
earnings all together. Brokerage firms are now trying to sustain
themselves in as many ways as possible, since we are not recording much
sales.
"We have also had to lay off a number of our estate
agents in line with market conditions and our income through
commissions has dropped massively by about 80 per cent in the past 12
months," he said.
Penhall said profits are based on two factors,
revenue and costs. "It has been imperative that both these elements be
addressed during the first half of this year. In light of the sharp
correction in the brokerage sector, there will be a heightened level of
'inter-brokerage co-operation' reflecting a maturing real estate
market. The correction in the brokerage sector will help more stable
firms to naturally look towards supporting themselves in an effort not
only to survive this change, but to emerge from it in a more matured
manner," he said.
Brokerage companies also detailed the various
measures taken by them to reduce their losses in the downturn. Many
companies have adopted new policies, including developing a
considerable leasing and international portfolio.
Alwadiya said
one of the policies now pursued by brokerage firms is building a
relationship with a network of other selective brokerages to help each
other in sales. "This has helped companies to increase their reach and
access different markets. The long-term partnerships, although
involving profit sharing, are very effective in establishing a steady
and sustainable stream of revenue for the brokerage firms," he said.
Krishna
said Indiana Real Estate was trying to sustain itself in the market by
raising a leasing portfolio. "We are not going aggressive on sales at
this moment, as there is no point at all. Even if brokers want to
invest on the sales front, there is no business left," he said.
Macnair
said: "We have had to adapt quickly to the downturn in the real estate
sector. At Elysian, we launched a Malaysian project. And we have made a
conscious effort to go outside Dubai. Having said that, developing an
international portfolio or a leasing portfolio has only allowed us to
minimise losses, not completely remove them.
"Real estate firms,
which heavily sold off-plan properties, have suffered the most. Those
which quickly resorted to developing a leasing portfolio have
benefited."
Harbor Real Estate said its leasing volumes
quadrupled in the past 12 months and the research and consultancy
assignments doubled. "We have managed to optimise our revenue streams
by focusing on specific areas of the market that emerged following the
property crisis, including consultancy, research and leasing services
and even consolidation transactions," said Alwadiya.
"In 2009,
our leasing division became one of the main revenue generating streams
owing to the increased demand for leasing. Brokerage companies have
also benefited from the fact that developers and sellers started
providing handsome compensation packages in return for sales results,"
he said.
Penhall said the leasing sector is witnessing an enormous level of competition with very low cash takeouts.
"Further,
the leasing sector is compounded with unprofessional behaviour on the
part of certain independent service providers. Therefore, we have
chosen to retain a lower profile in the leasing market and our exposure
to this sector of the real estate market is limited," he said.
He
said like most brokerages in Dubai, Gowealthy, too, has had to adjust
its trading model to suit market conditions. "Unlike most of the
general brokerage companies during the past year or two, we chose to
focus our business model on providing a dedicated service to a select
number of developers, providing them with a full
services-sales-marketing functionality," said Penhall.
"The
market correction during the latter part of 2008 has seen a significant
directional change away from off-plan properties, with the current
focus being on the secondary markets in completed products. Our
business model has seen a significant realignment during this
correction period.
"Initially our focus was on realigning our
revenue model towards the areas of business where there was action.
Since February and March, Gowealthy has been extremely busy in
servicing the 'open house' concept. We have achieved a significant
number of transactions from this sector, which have helped in
minimising trading losses during the first six months of this year."
According
to Gowealthy, the recent months have reflected a steady increase in the
number of overall deals, although current levels are at significant
lows in comparison to 2007 averages.
"We are seeing a slow
increase in deal values within certain high demand areas, such as the
Palm Jumeirah, Downtown Burj Dubai and Dubai Marina. We anticipate a
further consolidation phase during the coming two months. The year 2010
looks to be a year of stabilisation and steady yet marginal growth."
Macnair
said residential properties with good quality finishes were the ones
faring well at the moment. "Prices in Tiara Residences in the Palm
Jumeirah have gone up from Dh1.9m last December to Dh2.3m."
Alwadiya
said affordable living areas such as Discovery Gardens and
International City were becoming more popular among the middle-class
rental segment.
"Yield generating assets are becoming very
popular among the investors segment, such as ready properties within
well-developed and maintained communities such as the Palm Jumeirah,
Dubai Marina and Downtown Burj Dubai.
"Affordable housing is
expected to generate higher yields over the short-term before the lower
quality of the establishment begins to be reflected in potential tenant
valuations. Hence, luxury properties that offer high-quality finishes,
amenities and facilities are looked at as a safer long-term investment
option," said Alwadiya.
Penhall said properties purchased before the late 2007 and 2008 boom phase should now be coming back into a net gain position.
"As
the market starts to reflect a glimmer of hope in positive price
changes, it is becoming more difficult to source quality properties, so
we see this as a particular driver of the short-term marketplace.
Finished products, particularly villas, have shown the most activity.
It is periods like this that force the most dynamic businesses to
adjust to market conditions and it is the businesses that have been
able to do so quickly and efficiently that will come out of this
challenge stronger and better equipped to handle the up-kick in the
market that will inevitably follow this period of crisis," said Penhall.
Alwadiya
said the number of viewings and transactions during the second quarter
of 2009 have increased dramatically compared to the first quarter of
the year. "For us, viewings increased by 45 to 50 per cent in the last
quarter."
According to Macnair, however, Dubai can expect to see a further reduction in sales and lease prices.
"Only
areas such as 'The Palm' and Downtown Burj Dubai will remain expensive.
Areas such as Victory Heights and Al Farjan are all priced currently
below 25 per cent of their original price. When prices reach 25 per
cent below the original price, that is when people start buying in
these areas," he said.
Krishna said Dubai's real estate has been
delivered as an investment product. "Investors will only enter the
market here once the world economy recovers. It is difficult to predict
any revival time for Dubai as we have to wait till international
markets show signs of recovery."
Source: Emirates Business 24/7
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