In a move which will be welcomed by investors around the world it has been announced that the Real Estate and Regulatory Authority (RERA) will be issuing a ranking system for property developers in the region of Dubai which will be made public. The idea has already gained much support in the market although the fine print is yet to be announced and there is speculation about which factors will be highlighted and which factors will rank highest in the review of all developers.
The announcement was made by the RERA after a number of domestic and international property investors were hit hard by the recent downturn which saw a number of property developers literally disappear overnight with projects half finished. Literally thousands and thousands of pounds has been lost due to the crash of a number of property developers in the region and it is hoped that the rankings table will take some of the pressure off the development sector and allow those with a good track record and financial stability to rise to the top.
The authority is currently evaluating all developers in Dubai (of which there are over 100) in the hope that they will be to whittle down this number to a more manageable figure which they can keep a tighter control of.
What factors would be used to rank property developers?
While there is nothing down on paper as yet the RERA has suggested that financial liquidity, experience in the market, the number of projects on the go and the added value which a developer brings to the community will all rank very highly on the new list. However, this is just the tip of the iceberg as a detailed review of each and every developer in Dubai would be required before the list is released. How long this will take remains to be seen, but it is most definitely a move in the right direction.
What prompted the review of Dubai developers?
In general there has been a reduction in both confidence and the service offered by many property developers in Dubai over the last 18 months. The ongoing credit crunch and property downturn has exacerbated the problem and many of the weaker and less focused property development companies in the region have literally disappeared overnight leaving investors high and dry with no compensation.
There was a risk, if the situation was allowed to continue indefinitely, that international property investors would boycott the region until tighter and more investor friendly regulations were in place. There has also been much debate about the off-plan project sector with a number of property developers taking money off investors prior to beginning the project only for investors to find that the development company in many cases did not even own the land. In effect investors were being used as private piggy banks by some of the more unscrupulous property developers.
How will the rankings table impact upon confidence?
There is no doubt that the rankings table, as long as it is suitably structured, will have a massive impact upon confidence in property companies in Dubai. When you consider there are now over 100 companies operating in the region there is potential for confusion and some of the lower quality property developers to advertise in the right places and attract the attention of property investors. The rankings table should assist both international and domestic property investors in choosing a developer and eventually a project.
However, there are concerns that much of the business associated with the property development market in Dubai would be concentrated in the top echelons of the rankings table. This has the potential to not only overrun some of the better property development companies in Dubai that could also have a serious impact on the growth of smaller companies which may well offer a quality service but possibly do not have the experience as yet. There is also the potential to starve some of the companies just below the top of the league table and possibly bring about financial difficulties.
Is this the end of the free market in Dubai?
There are serious concerns that while the rankings table is a brilliant idea and will no doubt be well received by investors, we are seeing the end of a free property market for Dubai developers which in the long term could be to the detriment of investors. The fact that any one company is ranked towards the top of the list could be used as a means to increase charges knowing that investors are willing to pay “over the odds” for the certainty and experience which they can bring to the table.
Alternatively we could also see companies who are maybe not at the top of the league table, but do offer a quality service, being forced to cut their rates and their profit margins in order to attract business. In effect we could see a polarisation of the Dubai property developer market which could have an impact on the overall property market in the longer term.
As with any move in the Dubai property market, the local authorities are more certainly behind the RERA move which has seen as just one stage in a total revamp of the property developer market in the region with regulations and laws set to be tightened. While there is very little in the way of criticism which can be aimed at the rankings table it has not gone unnoticed that the government is taking more of a hands-on approach to the market and those operating within.
The Dubai property developers rankings table is most certainly a step in the right direction and is likely to give the RERA a confidence boost within the marketplace. However, there is a need to avoid complacency and the fact that such a rankings table could see good-quality businesses effectively blacklisted because they are not in the higher echelons of the rankings table – because maybe they do not rank well for one particular measurement.
The rankings table is not the be all and end all of the reorganisation of the Dubai property market and it is worth remembering that while the measurements used to arrive at any one ranking are very useful, they are in effect historic. There is a possibility that the rankings table could turn into a self fulfilling prophecy to the detriment of competition and investor choice in the sector.