It is simply not smart for real estate professionals to try to ignore or sugar coat current market conditions when speaking to clients
The UAE property market is in a challenging mode – but the situation is complex, and real estate brokers need to talk straight with clients says Firas Al Msaddi, CEO of Fam Properties.
Right now, every UAE real estate agent is being asked the same questions, and I think the best approach is to break things down into three areas and answer each point.
Firstly, people are asking brokers: “is the market down today?”
In my opinion, agents should begin by acknowledging current challenges and educate their clients. Yes, the market is very slow – and I do not see Dubai’s market as a short-term scenario anymore. However, a stable medium and long-term play is not bad news for us in Dubai. Brokers should assure people that this is a global trend being seen in other key markets like London, Germany, and Turkey.
On top of that, in Dubai’s market the myth about there being lots of distress sales is really exaggerated.
What appears to be misleading in this context is when people see agents offering certain properties at a significantly reduced price. In most cases this is due to one of the following reasons: the original price was over-priced, and the original purchase decision was not built on strong data and market analysis. Then there are properties purchased as part of a massive community with thousands of the same homes on offer, which can indeed make investor exits very crowded. A reduced price may also be because a seller wants to sell overnight for whatever reason. So-called ‘fire sales’ will always see sellers get less than what they could normally expect.
The next question that brokers are facing is: “is now the best time to sell?”
In my opinion, it is the worst time to sell. Why? Because sellers will be offered 15 to 25 per cent less than 2015 prices. In this market, right now it is a great time to buy – but it should be a well calculated buy that allows the client to truly leverage on today’s market sentiment.
Then the client question arises: “But where and what should I buy? How can I ensure it is a good opportunity?”
To help answer this, here are the dynamics that dictate purchasing decisions in booming and in slow markets. In booming markets almost every property sells, regardless of how amazing, standard or poor it is. The price, payment terms, and affordability dictate the majority of buying decisions – not necessarily the property itself. In fact, in booming markets prime properties can become very expensive and sellers can act like they are sitting on top of the world.
However, in slow markets prime properties become accessible and reasonably priced. Opportunists will focus on finding the most prime units located in the most prime projects. The vast majority of sales transactions will be on prime units, while ordinary properties will suffer a trend of slow transactions.
Ultra-prime units remain under supplied, despite market sentiment. In a broad context, the ratio of prime projects in prime cities versus standard projects, and the ratio of ultra-prime units in a prime project forms about 10 to 15 per cent from each project.
Typically, ultra-prime units will retain their liquidity irrespective of volatility within the market and are less vulnerable to price fluctuation. Units of poorer quality, on the other hand, display more price elasticity and are near impossible to liquidate in a period of market downtown. When the market is strong, it is usually these poorer quality apartments which become overvalued and are exposed to the effects of an inevitable market correction.
The obvious opportunity in today’s market is to leverage this once in a decade opportunity to access premium real estate which my otherwise be unattainable when the market is hot.
If we zoom in on only ultra-prime units, we realise that they are never overly supplied. That being said, the obvious opportunity today is to leverage on the once in a decade opportunity of market access to premium real estate that becomes price- less in good markets. While it gets less effected than any other standard property when the market is down. It remains liquid despite market sentiment, low or high.
While standard and poor units are almost impossible to liquidate in down- turn markets, ultra-prime locations are properties are hard to find on market and when found, are overly priced in good markets. While remaining most in demand and accessible to buy in down markets, prime locations and master communities often carry a strategic interest for the government, which is an important factor of assurance to the durability of the project value and growth. It is also worth mentioning that prime and ultra-prime properties are not necessarily ultra-luxury properties –they could be on land in a sensitive and limited supply area, or it could be a uniquely positioned office building or residential unit.
It is simply not smart for real estate professionals to try to ignore or sugar coat current market conditions when speaking to clients.
This can be insulting to their intelligence and result in them losing faith in any marketing spiel. Rather, they should acknowledge and educate clients about the challenges being faced and present certain identified opportunities born out of current market conditions.
The reality is that even in the face of the biggest crisis any company can face, including threats to economic stability, we can still find and create opportunities that can be exploited to the full.
