|Thursday, 17 July 2008 01:00|
Foreign investors and financial groups who are growing to recognize the Gulf as one of the few markets unaffected by the global credit squeeze - where an investment in new real estate developments brings almost certain double-digit percentage returns. Do you think that the market is being affected by when people come here and buy plans, wait a while for the value to shoot up then take the money and go. What does this do to the local economy?
Thank you for the invitation. In every part of the world the whole cycle of real estate investment is not a simple element, it's a function of capital market movement from one side to another. Weather it being stock market, bond market or real estate cycle. So it's a function of the global economy and what is happening in the Middle East is we are actually in a unique position to create something new that wasn’t there before. You can't really look at this as a typical mature market cycle but a growth of a new opportunity. I have been here over eight years and there have been many times and speculations where such things are put in the context of a mature market cycle and the first thing I ask people is look at this as the growth of a new city, a new market, a new opportunity. Then the perspective and the time frame changes. Having said that, there will always be in any healthy market a level of speculation and that is a good thing. Speculation itself is a confirmation that the market is on an up run, if you think there are no speculators in any market be it stock market commodities, the price will be tanking. So speculation in itself is a confirmation by the capital market saying there is a big opportunity, there is an up going movement.
How confident are you that a bubble is not forming? And then we can expect the correction of the prices. Many experts are comparing Dubai's markets to the Singapore where after exponential growth and a certain period of stability the prices plummeted by 20-30%. Do you see something similar happening here in Dubai?
I think what we have to realize is how we use the term. If your prices have been growing over 200% over 2 years and they stabilize. Is that a crash? No, I would say it is actually stabilization. Every great market goes through a rapid growth, time for maturity and then the next growth and that is a healthy element. That is what probably might happen in the next little while. Now, that has been predicted forecasted and questioned and speculated over the last 7 or 8 years and has not happened, will it ever happen? Probably. The element of real opportunity is the timing, everything in investment is about timing. So whilst half the people think it is going to go down the other half think it is going to go up and that keeps the opportunity. The fundamentals are very strong in the Middle East, you have to realize this is a new area, especially in terms of real estate demand there was nothing in terms of supply for the last umpteen years. So, when you are creating a brand new city how long is the string? That is what we have right now.
How do you see the future development of the property prices? People are coming here now because there is a buzz about Dubai. How about in 10 years? Will people still want to come and live here? And will prices come down then?
The pricing of real estate is more at international level, who comes here and what the city is at that time. You can always compare international cities: Paris, New York, London, Singapore, Hong Kong. What happens is that it is supply and demand as well as what is available and what that city represents. Dubai represents the capital in terms of economic activity, cultural and in terms of social activity of this entire area. Let me just phrase back and see what happens, if you draw a circle around Dubai within three hours flight distance and take out India you looking at a population base of 500 to 600 million people which is a size greater than the US. Now look at the US and see what cities there are: you have New York, Los Angeles, Chicago all those greatly important cities. What's in the Middle East? Exactly…
Nakheel's division include development, hotels, marine group, asset management, retail and international. How do you assess your corporate structure, what kind of particular advantages can you draw from this?
Nakheel as a company is what we call a vertically integrated company, what we have is the creation department; it’s the creating of the assets which is marinas, hotels, retail, development. And the second Branch is the asset side, the operation. So the retail operates the assets, hotels operate and asset manages and our community management. We have a huge amount of people that are living and that are relying on Nakheel asset management to create their living experience. The last branch is the fund management, the capital side because after all you have to make sure that the money is funneled through each stream. So we have three branches: Creation, Operation and Funds. And what you are seeing are different functions: hotels, retail and management they actually handle different elements of the entire cycle.
As a private company you are not obliged to disclose any financial data but at least could you for our audience chart out the growth of the group and some of the key financials.
Nakheel as a company is a fairly young company. It started in 2002 with a group of people, I think there were about 20 to 30 people started now it’s a company of 3500 people. So in terms of growth it has been phenomenal and in terms of what we are doing in development activities and capital expenditure is quite phenomenal. What we are doing has been profitable from day one and will continue to be. What we tend to do is we tend to be very judicious in what we plan and how we forecast different projects we have some projects that are designed to get finished in three years, some five, some ten, some fifteen years and those things are carefully planned and synchronized to match our growth curves as well as our capital expenditure.
Nakheels chief executive officer Chris O'Donald said the firm may launch an initial public offering before its record 3.52 billion Islamic bonds mature in 2009. How do you see the possibility of Nakheel being listed on the Dubai International Financial Stock Exchange and what do you expect from this move?
Well, first of all when we had the Sukuk it was always stated that one of the options for Nakheel to pay back the Sukuk which is a bond offering is going IPO. So there is no surprise about the possibility as well as option from Nakheel to go IPO. It is something that we do all the time, we evaluate every six months saying what the best strategy is and when we talk about the strategy it is about capital strategy. You got the bond offering you got the IPO you got the different Sukuks you actually create separate development funds to carry out various activities. So we always look at it and see the cost and benefits of different elements and we are going through some initiatives as well. So those things will bring different elements of capital and different partnerships, don’t forget we actually are about creating partnerships weather it's institutional investors or private equity investors and those things come into play as an overall picture.
What is your strategy over the next 7 or 8 months?
I think coming into 2008 and 2009 looking at an IPO is definitely an option what we do is we always have our company ready to be 'IPOed' in terms of corporate covers, in terms of how we do. We act as if we are a public company. We choose to be private, so if we decided for a whole bunch of reasons we could go public but that has not been decided.
Nakheel is developing some the most creative projects the world has ever known: the Palm trilogy to Dubai waterfront which is expected to become the largest waterfront and largest manmade development in the world and the newly announced universe. What prompts you to come out which projects as ambitious and as huge as the ones mentioned?
Nakheel has always been known as a company that brings a new definition to the word innovation, and that’s what we tend to do. If you want to do real estate development and do just like anybody else, there's nothing unique about it. That is what separates us. We consider that our competitive advantage. Doing something that is unique, something that is challenging. We have a saying within our company if a consultant says you can't do it then we say that’s great, it's an opportunity for us. Just because you can't do it, doesn't mean you shouldn't do it. You have got to find ways, that is part of the reason we have some of the best creative people in terms of engineering, technical know-how and financial to make sure what seems to be impossible is being done. We have repeated from The Palm Jumeirah, Palm Jebal Ali, Palm Deira, Dubai Waterfront and The World Map as well as Universe. There are certain things, once you overcome a major challenge the next second third and fourth one doesn't get that much more difficult. It actually frees us to do something more creative.
The projects of this scale have never been executed anywhere in the world how confident are you in your ability to complete and the properly asses socio-economic and ecological consequences of these projects on Dubai?
I'm glad you asked that question because we actually have three Ps that we always go for: number one is people, what are we doing for the people and what is the benefit for the people. Second is what is for the planet, people and planet. And the Third one is just as important is profitable because if it's not profitable then it's not sustainable. So we look at all three of those things. In terms of people we create new cities, a new place for people to live for the next 10, 30, 40 years. If you look at cities around the world, the best cities around the world it's planned what we called 'naturally' over hundreds of years, what is being done in Dubai: we are planning for the future. So some things appear to be instant cities however, we know that it's going to grow and it's going to morph. Some in a better way, some in a probably worse way but that's part of our city's' growth and that's what we are planning. In terms of planet we are the most judicious when it comes to protecting our environment because you know what, in the Middle East water means life, it's not only about beauty or real estate no it actually means life because we create desalinated water from the sea water so if the quality of water is bad then we actually are choking our own life blood. So we have formed and announced Blue Communities which is a new initiative for the whole world to adopt as well as learn from the best practices and what could be done better. We always say 'hey how can we do the next one better?' And because we are the forefront community developer as well as experimenter on some issues we know how to do it right.
Well for instance Palm Jumeirah is empty despite being sold out because 95% of the owners live abroad. How is this going to affect your planes and estimates for the other projects?
First of all I think there are several people at Nakheel as well as many people that are living on The Palm Jumeirah that actually disagree with you. Chris O'Donald our CEO is a resident of the Palm so are several other executives that are actually living on the Palm. I myself am living on Jumeirah Islands which is a Nakheel project. So to use the term empty would be a gross understatement. We actually have most of the villas and apartments being occupied for people from all around the world. What some people sometimes fail to recognize is that it is used as a primary as well as a secondary or third residence for many people. Because of the special situation that we are in, in the Middle East it is quite advantageous for many people to have residency and sometimes in the summertime it's not the best place to live, so lots of people actually live here part time: 6, 7, 8 months of the year. Other times it's left vacant but because there is individual world status it's not being rented out, there are very few especially on Palm Jumeirah and places like that buy to let properties. There buy to let in other communities that we are building and you will see bustles of people and activity but in a luxury development like that many people would prefer to buy and have their houses vacant while they're not their because they prefer it that way.
I'm sure people already know a fair bit about the world but can you tell us more about the universe?
The universe is our future. That is basically our plan for the future as to what's coming next. It is a new waterfront development or community that is going to be 10-15 years down the road. What's important is that it's showing the grand master plan: what's possible and where there's more and in that spirit we're saying look: this is what is coming up, this is how we are solving some of the issues and this is how it's going to look like as sharing our grand master plan.
Do you get a lot of interest in properties developed by Nakheel and how does your pricing compare to others in this location or overseas now that you are offering long term appreciation for your investors?
The term Nakheel has been associated with number one quality, innovation and I think it's a developer strength which all means strength, trust and it will translate into value; value for money is always the case. We have been appreciated by people in the investment community because of whatever we provide the prices tend to appreciate. Dubai as an overall market: the prices are not at the top level international prices which means there's an opportunity for growth and that's why you see a lot of people coming here. Nakheel as a company intends to keep that reputation and carry others, we are the leaders in the Dubai market so we always set the benchmark a little higher than everybody else because we want to bring the industry as well as development community to come with us.
One of the most pressing issues in Dubai is the shortage of middle and low sector accommodation. Developers in Dubai are focusing mainly on building upscale residential developments. How ready is Nakheel to tap into the potential middle and low cost residential segment?
When we talk about affordable housing we actually have three terms: we have city leaders, city workers and city builders. Nakheel actually saw the need for accommodation for city builders and city workers long before anybody else. That's why we have developments of 60,000 units for International City as well as Discovery Gardens. Before people even mentioned the term affordable housing we were building it and people are living there right now, we continue to develop other phases of those developments and some new ones on the plan. Now what's happening is the price is going up because of the lack of supply and that is something that we cannot control we will bring out more supply so that price will be less of an issue in the affordable housing element. However, I think the growth of migration that's coming in far exceeds any supply that's going to come up. Don't forget people that come here at a moments notice there are many many flights coming to Dubai but in terms of affordable housing it takes 2 to 3 years so you see a bit of a mismatch in the supply and demand.
In may four property companies were being investigated by Dubai's real estate watchdog over what appears to be non delivery of projects. Taking into account all the shortages how is Nakheel going to guarantee that everything is delivered on time and without and alterations in the original plan?
I think in every market there is a key factor called developers reputation and trust factor. As the market grows and matures the consumer market will actually be able to tell the difference who the 'A' quality developers are versus 'B' and 'C' class. We will let the market dictate and sort those things out and as that happens the price associated with each developer will vary and we believe in market economics and those things will sort themselves out. If you want to regulate too quickly and too fast it will create an imbalance that you can't fix.
The buzzword of today is corporate social responsibility and Nakheel has often been critisised in the past for it's insensitive approach to construction, however Nakheel is the only property development company in the Arabian Gulf with dedicated exoerts working full time in the area of environmental research and development. Can you tell us more about the Blue Communities, to what extent do you integrate the green initiative adopted by the Dubai government in your projects?
When we talk about corporate social responsibility we look at the whole string of assets: social, economic and environmental. Blue Community actually talks about the environmental and it's talking about how we make the waterfront communities more sustainable from an environmental point of view and better. Palm Jumeirah for example when we first started 7 years ago there was no marine life whatsoever because it was actually an extension of the sand now if you go diving out there we have more marine life out there because of what we have created with the revetment and those kind of elements we are creating something that was never there. So, in a way our green initiative is creating the water blue and that's why we call it blue communities. The other elements that are quite important is what we are doing about the social side, we try and we do our best to make sure that what we do is not just on the real estate side but our corporate activity: how we treat our own employees, what we do about recycling in our everyday lives and making sure the people that are working for us which is over 3500 people are happy and proud to work in the community that we are in. So helping out different people. We have a joint venture with Sultan Sulayem where we have an agreement that a portion of our revenue will be dedicated to help the underprivileged people around the world and those are the things we want to do in every facet of the company
Nakheel is gearing up to make its first investment outside its domestic market through a newly formed subset called Nakheel International. Now that you are going international how are you going to design your marketing and brand recognition strategies to put Nakheel into the world's limelight? What will be the core of your brand strategy?
What we have been asked many, many times over the last 5-7 years is that people have recognized what we can do and they have asked us to come and do whatever we are doing back in their countries. We have steadfastly said no because we were a Dubai based company. Being Dubai-centric that was our core strength and that's actually where we kept our reputation and built who we are. Now we are going international we are looking at key markets in the large scale cities to put our brand so people can associate the Nakheel experience they see in Dubai in other markets around the world. There will be announcements coming up in the coming months and years where Nakheel will become a key player in selected markets.
Many people when they see the Palm they know it's Dubai but not associated with Nakheel. So you need to bridge this difference.
Absolutely, association of the palm experience with Nakheel brand is a key element. At the same time being able to harness the Nakheel and Dubai world; all of the brands that we have under our umbrella one and only Barneys New York. Those kind of elements are quite important. We can actually create instant cities and instant attractions anywhere we go.
How confident are you that with the increased international exposure the global economic downturn will not bite into your profits?
I think what is happening in the capital market is something that you cannot avoid, you cannot deny it, it's happening. The impact of downs is actually in the cost of capital and the timing of the capital we are basically doing a judicious matching of looking at what our cost bases are and when they are available. As long as you can be mindful of those the basic economics of why people come to Dubai hasn't changed, and it won't change so we're pretty confident.
Partnering is an essential part of going global. How does Nakheels strategy in terms of entering new markets look out for opportunities and partners?
We have always said, when we go abroad it's almost like saying 'think about ones life, do you look for your wife first or do you look for a house first?' That is how it's the same thing.
Can you maybe elaborate on what market you are going to enter for your first international project?
We have found that wherever we go, having the right partner who shares our vision, our goal and our investment strategy is quite important. At the same time going through what we have found that they have been looking at similar markets that we have. So those kind of places we'll be going into will be announced in the near future. They are typically developed markets: North America, Europe that's one; at the same time Asia is another one that everybody has been looking at. We are particularly quite happy with Africa because it's one of the under looked markets; we are looking at all those things. With a different criteria, with a different time zone and a different investment outlook.
Limitless is your sister company and it's the international arm of Dubai World. What is the connection between Nakheel and Limitless In terms of international expansion?
Limitless is our sister company which is involved in large scale, new city developments. It has a different look and scope: if you have 5000 hectares in Malaysia would that be a Nakheel project or a Limitless project? Definitely a Limitless project because of what they do, Nakheel is more of strategic key gateways, large scale as well as being able to enhance the brands that we have. So you will see different places being developed by Dubai World sister companies but it's fairly well coordinated and synchronized. We both know each companies strengths, I'm in discussion with a Limitless director and I said this would more be your project and vice versa.
To finalise the interview: what is your dream for Nakheel? What would you like to achieve?
I think our goal is to deliver what people are expecting from us. That is the key element: meeting peoples expectations and hopefully we can exceed them every time.