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into longer term investors and you can only do that if you provide them with some measure of financing; and there were also those who needed to consolidate their property holdings to become more manageable and increase their equity.” “It’s all about increasing equity, therefore allowing for larger owner-
ship in real estate. We learned that very quickly back in 2009 and we implemented a series of tactical plans that involved consolidation, restructuring and a lot of consultation,” he adds. Sorouh also looked at its other customers as part of the process,
as Singh explains: “I think we were one of the first to talk to sub- developers and also to try and match them with financing and with skills. Some of them were on the lookout for consultants to work with them to get their developments off the ground, and do their development planning, and we are proud to say that it has resulted
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in some 10 developers starting their projects in Shams Abu Dhabi. “We take no risk in their developments,
we are a facilitator to match them with equity investors and financiers, and then it is up to them to take it from there.” And this remains a challenge according to Singh, who says: “I think 2010 will get a bit more challenging in terms of sustaining sub-developers and their buildings. We need to get them to start selling their properties and move forward with construction. “I think the key for developers gener-
ally is to show that there is progress in the development before they can go out and start selling; people need to see some physical progress on product.”
CONSOLIDATION GAINS
For Singh, the realities of consolidated portfolios and increasing acceptance of a need to build small now to think big later, is a catalyst for future developer success. “For those with large-scale developments they absolutely need to phase them, because the success of the first phase will determine the uptake for the second phase. So this will also mean lowering their requirements for financing and for other resources, including equity injections and so forth, to a more manageable phase – and that’s what real estate investment and development is all about,” he remarks. Singh cites a concrete example from Sorouh’s own portfolio. “We have done the same thing and consolidation not only took place with the purchasers of our property but also internally, in terms of how we phase our developments. “We implemented this on our Alghadeer project along with a customer retention policy and managed
to retain a substantial number of our customers. We compacted the development, carried out the first phase and now we’ve already awarded our infrastructure contract – which is getting underway. It’s all about customer retention now and default avoidance – you can avoid it in many ways but one of the most participative ways is to increase the equity of the owners in their properties,” he adds.
INNOVATIVE FINANCING
The need to re-ignite the lending market is also a key focus with the recent partnership with Abu Dhabi Finance on the Sun Tower project already yielding strong levels of interest – which will hopefully trans- late into actual approvals. The limited period offer has a two-year fixed mortgage rate of 4.99 percent with the company offering up to 85 percent loan to value financing, but will the financial landscape be any healthier in 24 months? Singh says: “I think you need to narrow the gap between what the market is offering in terms of interest rates for mortgages and what you should do to bring people back into the market to look at real estate, not just as an investment but for end-user occupiers. “These occupiers need to have lower acquisition costs, so with our overall emphasis on customer- centricity we have gone into the market to try and get people attracted to purchasing our type of properties with attractive home loan rates. Abu Dhabi Finance already has an 85 percent loan to value ratio, up to 25 years in terms of tenure, and also a low interest rate for the first two years, and these are three ingredients that will help translate the advertising into actual transactions. “One important thing that needs to be considered is the amount, and this is related to how money supply
is coming back into the market, not only for real estate but for projects generally. There is a lot of emphasis by the government to implement infrastructure development, and that will create a derived demand, and when you have such pump priming being carried out it will have a stabilising effect on borrowing rates because infrastructure spend is normally taken at borrowing rates, which are softer,” he adds. He concedes that there are other contributing factors that could effectively dampen any
potential further increase in interest rates, but the commitment of the Abu Dhabi government to infrastructure spend is the one to watch. “After two years all interest rates are based on
what the market prime rate eventually settles on and I think a two-year term will help ride out a lot of the kinks in the coming years as the industry goes through a very challenging phase,” he comments. But it’s not just about attracting new customers –
Sorouh is planning to extend the offer to its existing client base, as Singh explains: “I think we need to up the ante with regards to our existing customers as well because we need to bring them back into the fold and see how they restructure their own financing to take advantage from attractive interest rates.”
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