How would you describe the climate of the real estate market in the UAE today?

MAHONEY: I think the real estate market in the UAE is overall cautiously optimistic. The first six months of this year have been better than the last two years and it’s grown incrementally in terms of transaction numbers month to month. I think Dubai has led the way in terms of activity because it’s got a good amount of property and still quite a good number of buyers and tenants. Abu Dhabi struggles because it doesn’t have as much property. There’s still a real shortage; property prices are still very high so sometimes in order to have the transactions you must have the property. There’s a growth in transaction volumes in Abu Dhabi and again, things are cautiously optimistic. For the most part everything is lead by Dubai and Abu Dhabi and the other Emirates are quiet. There hasn’t been a lot of movement in Ras Al Khaimah or Sharjah or Ajman other than your sort of vanilla leasing and day to day leasing. But I haven’t seen a lot of demand for investment or buying and selling in those Emirates. Things are increasingly active in Dubai and Abu Dhabi, yet relatively quiet in the other Emirates.

What are the recent trends in property prices in Dubai?

MAHONEY: There have been a number of reports issued by various organizations itemizing and detailing the price crash and the price fall. It’s anywhere from 50% to 70% and it’s fair to say that it was a very dramatic fall. Over the last 12 months, we’ve seen prices in prime areas of Dubai start to stabilize and start to grow. There are examples of that in the Palm, the Burj District, and in Dubai Marina. We’ve seen this incremental growth in prices as activities have started to pick up and there has been a little more confidence. This has mainly been in the popular areas and residential. In commercial, prices have continued to fall and it’s hard to see when that will change. The fall has really slowed. In prime areas, it’s stopped falling but in some of the outlying areas and the new districts that have been developed, there is still a lot of stock coming to the market.  Businesses still have a lot of property being developed; there is still demand because infrastructure isn’t there.  And across the rest of the industry, things have stabilized but there is not much growth in pricing in those markets. Moving forward, we will see some of the prime areas continue to grow as there is cautious optimism. It’s hard to say, with commercial, when that will start to turn around. The next 12 months will be really telling.

According to Deutsche Bank AG, Dubai property prices slumped 62 percent from their peak in mid-2008 after the global credit crisis caused mortgage lending to dry up and speculative demand waned. Looking forward, what are your expectations for prices for both the buying and rental markets?

MAHONEY: You have Dubai and Abu Dhabi, then you have the other Arab Emirates, particularly Sharjah, Ajman, and Ras Al Khaimah. In the other emirates, there hasn’t really been any growth in value and those markets were driven by excitement from investors around the world as they were connected to Dubai in 2006 and 2007. There hasn't really been any growth in prices. I think we first need to see a lot of activity in Dubai. The challenge has been that when the property crash hit, there was a massive growth in supply in Dubai so a lot of people moved from other Emirates to Dubai because it’s where they work. Because of this, it’s been more challenging for those markets to replace those people who left for Dubai because stock has continued to be added to Dubai’s market. When people start to see a shortage of stock in Dubai; they will filter to the other Emirates. Abu Dhabi has its own dynamic; it does have a close relationship with Dubai, but there continues to be a shortage of stock.  We look at the residential rental market which has had the most activity. Prices have been high and they have stayed pretty high. They've come down just a little bit, but are significantly higher per square foot than Dubai because of the shortage of stock. Only when we start to see new projects completed, when we see that new stock come to the market, will we see rental rates fall a little bit. Overall in Abu Dhabi, there’s room for fall in rental prices; in Dubai, it is pretty stable. The only thing we can see in prime areas is growth in rental prices. In the other Emirates, it will be a while before we see growth in rental or sales prices.

Abdul Rahman Al Ghurair, Chairman of the Dubai Chamber of Commerce and Industry said, “The decline in the real estate sector, has positively impacted business in the emirate as it has led to the entry of new commercial and housing units into the market and consequently more people and companies.” Do you agree with this statement? Will Dubai be a better market for the stronger players who have been able to survive here?

MAHONEY: The crash in the property market has been a test for any real estate business. It’s meant the end for a lot of real estate agencies. We’ve seen 70% of real estate agencies close over the last three years and it’s been a very tough market for any real estate agency or developer. We’ve seen most of those companies leave the market place over the last few years. Most of the companies that remain are strong. They’ve found ways to bolster that strength either through mergers or through diversification, or through cutting out services that have been loss making. For those of us who remain, the market looks pretty strong. Once we got over the hurdle of cutting our costs and realigning our business, things have looked pretty positive. If we can continue to grow organically, the future looks pretty bright. Most of the companies that are in the UAE believe in the future of this country. The market will continue to grow and there will continue to be a lot of demand for real estate. There will continue to be growth in new businesses and an over-supply of commercial stock which has been unfortunate for those investors in 2006 and 2007 but is going to be good for the long term. It has brought the cost of doing business in Dubai dramatically down. When you look at Dubai and you bench mark it against regional cities, it has far superior property than any regional country. That will be a USP that Dubai has, one that it was in danger of losing in 2008, but now it is back and will be great for the long term.

What new initiatives is Better Homes involved in?

MAHONEY: We as a company have three main business streams: property management, rentals and sales. We focus on residential and commercial. Commercial is divided into industrial, retail, and office. Each of those different business streams act quite differently and as an agency we need to have all three to sustain growth. Property management has sustained income stream. Because it doesn’t fluctuate very much, we see that as being our bread and butter. A lot of people in Dubai live abroad and are in Dubai for very short periods of time so it is difficult for them to manage the logistics. We do it for them. The rental market continues to be stable as well. Throughout the crisis, we did not see much fluctuation in our rental revenues. In 2009, we saw that actually grow as people stopped buying and people started moving homes to get better prices. Sales come with peaks and troughs, basically as the property market goes through its cycles. So every number of years we have a boom for two or three years. The last cycle was unique as it was much more pronounced and lasted much longer but the cycles exist across every market. Property management is one of the major growth areas. We’ve had a good year in 2011 and we think we will see a continuation of that in 2012. In 2013 and 2014, we expect to see a lot of growth in sales because a lot of people will be surprised by a shortage in the residential markets, particularly the prime markets coming into 2013, and that is going to drive a growth in sales.

Recent reports suggest developers in Abu Dhabi are ignoring directives mandating that 20% of new residential projects be affordable housing. What can be done to address the affordable housing issue?

MAHONEY: Affordable housing has been something that various emirates have talked about for a number of years. Dubai has dealt with this issue for several years. Parts of Dubai, such as Karama, were originally developed as an affordable housing community by Sheikh Rashid very successfully many years ago. This is something that citizens and government officials are concerned about and there have been directives to try to address this issue for many years. The problem is when there is an acute shortage of housing. Even when you construct a large number of units that are structured to be or strategically placed to be middle or low income, they end up still being quite expensive because there is a shortage. In Dubai in 2004, 2005, and 2006, everyone had 7 people in their house and rents were sky high. People were getting property that was positioned to be low income but ended up being quite expensive. It is difficult to address low income housing when you’ve got an acute shortage. So I think the best way to address low income is a substantial increase in supply. You’ve first got to attain a supply-demand equilibrium, then you’ve got to position certain stock as low income, less frills that sort of thing. It is very difficult to do when you’ve got that shortage.

I think that affordable housing could be very profitable for the private sector because that is where the numbers really are. I know it is something that many developers have talked about. There have been large scale developments to try to address it. Quasi-private developers like Nahkeel developing Discovery Gardens or International City have been specifically addressing that. Over the coming years, you will see more upcoming developments dealing with the affordable housing segment and they may tie in with some of the transportation infrastructure like the metro and so on. I've spoken to many developers, who have talked about the need for affordable housing. I think it will be interesting to see that, as Dubai continues to grow, some of the old parts of Dubai, such as Deira, will start to become the affordable housing base of Dubai. That will satisfy a certain portion of demand for affordable housing. But it is the biggest segment, can be very profitable, and is something that a lot of developers are looking at today.

How has RERA (The Dubai Real Estate Regulatory Authority) impacted Dubai’s real estate market?

MAHONEY: RERA has been around now for several years. Its main impact is to give people confidence in the regulatory process of Dubai. We’ve seen RERA tackle various issues in the real estate market from training and licensing real estate agents to handling disputes between developers and buyers and developers and contractors. They struggled in the beginning because there were limited resources and they were trying to establish a regulatory agency that, in many other countries had existed for decades, in a matter of 3-4 years. It has been really demanding and there have been some real challenges to it. The market is now benefitting from the work RERA has done. They’ve been quite responsive and people feel a sense of confidence that there is a consumer protection agency that they can go to and that can give people set guidelines. It’s also a venue for real estate agencies to share ideas with, to talk to if we have a problem or if we feel there is something missing in the market. For example, we’ve been talking to RERA recently about having some trust structure for deposits that are held for purchasing properties. Currently, most agencies hold the money, which is a major liability. We do not have the appropriate expertise to deal with this, so we’d like to see that held with a regulatory agency or an entity associated with a regulatory agency. It will force buyers and sellers to use lawyers when buying or selling property. Right now, most people just speak to their agent and ask their agent what he or she thinks. Most people want to save a bit of money, which I understand, but it leads to misunderstandings and legal issues. The issues RERA is dealing with will take time to coordinate with various entities in the market. It’s those kinds of things that really help and every year there is progress that is made and I think that is really positive. Overall, it’s about confidence.

What new and innovative ways are real estate companies reaching clients today?

MAHONEY: In terms of the ways people are marketing now and the ways that people have had to change their marketing in order to address this new market place, the fundamental change has been online marketing. The reduction in spending on print advertising and the growth in spending on online advertising has been good for real estate agencies and developers because it lowers the cost of advertising.  The cost per lead is much lower today than it was three years ago. What has also happened is that the hubris and excitement that we saw in advertising in 2006-2007 led to the drive for outlandish marketing. People use anything from balloons, to dancing monkeys, to robots that walk up and greet people. That era of marketing had its place but what people have started to realize is that they need to return to the basics.

How have new technology and innovation changed the industry?

MAHONEY: What people really want is that sense of sincerity. The consumer is sensitized to anything that is too outlandish; they associate it with a lack of credibility. As an agency we need to focus on being clear and transparent. We must focus on well established marketing tools that we know will work such as outdoor advertising, for sale boards, a great website, and HTML advertising. There has also been a reduction in cold call advertising. We as an agency have never really believed in it because we believe it irritates customers. We don’t want to associate ourselves with the hard sale. In summary, people are looking for sincerity in marketing and they want distance from the hubris we saw in those boom years.

What should potential investors know about Dubai?

MAHONEY: Dubai was really successful in building this brand over the last 15 years but its image has suffered because of the property crash. Therefore, the crash was amplified because it was already such a successful brand. In the years that Dubai was booming, to a certain extent, it suffered from an overexcitement of optimism. People exaggerated the realities on the ground of how fast the city was growing, how insightful the government is, how much money people can make. In the same ways, I think that exaggeration continued in the property crash. When Dubai crashed, it suffered from the same over exaggerations and it has taken some time for people to realize that a lot of what’s been said in association with the property crash has been exaggerated.  What I have noticed is that people who interact with the market place in Dubai have a very different perception than the people that live outside Dubai and know it only through the media. It’s completely understandable. The property crash was severe and is still being dealt with. At the same time, Dubai continues to play a very important role in the regional market. The infrastructure continues to improve and new businesses continue to open. Sometimes people say to me, “Are people actually still opening businesses in Dubai?” Major corporations are growing and are opening businesses in Dubai because this region is growing and Dubai is the very best place to open a business. It will continue to benefit from that and it is in many ways so far superior to its other competitor cities that it will have that edge for the foreseeable future. People need to try to understand that the message that they are getting from the media is not the same as the fact on the ground, and that is the same for many global issues.