Gulf Property Exclusive
Dubai
While the going gets tough, the tough get going. As the real estate market faces another challenging phase with looming oversupply that is putting additional pressure on prices and rents, most real estate companies are undergoing belt-tightening exercises to make their operations lean in order to manage business activities on tight budget.
Companies – large and small – across the UAE and beyond are adjusting to the new market realities in order to survive and sustain their businesses that will help them to navigate out of the current situation.
That’s exactly what Farhad Azizi, Chief Executive Officer of Azizi Developments and the eldest son of Mirwais Azizi, Chairman of Azizi Group, did when he returned from Germany a few years ago.
“When it comes to the survival of the fittest in business, you are either a Nokia or a Samsung. Twenty years ago Nokia ruled the mobile telephony – controlling more than 70 percent of the global handset business,” Farhad Azizi, Chief Executive Officer of Azizi Developments, told Gulf Property in an exclusive interview.
“Now look at the position of Nokia in the global mobile telephone market. It’s virtually non-existent. It lost out to competition when the handset business migrated to the smart phone era. Samsung and Apple led the changes and became market leaders while Nokia refused to change with the changing time. Nokia is like an alien brand to most children and teenagers who use cell phones.
“So, change is the name of the game. Companies have to constantly change their strategies and business policies in line with the changing times – or become irrelevant. Azizi Developments is a serious and important player in the UAE economy and we are here to stay for the long haul. So, we also felt the need to change in line with the changing times and the ground realities.
“And the ground reality of today is very different from what it was a few years ago. The game has changed and we needed to change to keep us going.”
On the development and marketing, he says there are two styles – the American Style and the German Style. The American Style focusses more on marketing and branding, while the German Style is focussed more on product quality and delivery.
“German people are not marketing focussed. I don’t think they understand marketing or branding the way the Americans do. Since I worked and set up my own business in Germany, I feel I am more influenced by the Germans,” he said.
“So, when I re-joined Azizi Developments a few years ago, I looked at the business from the German perspective and I could see the problems.”
What Farhad Azizi did in the next two years, could become a case study in Business Management courses in universities. Within this time, he not only just restructured the company, but effectively re-engineered it to make it a more customer centric and development-focussed business.
“To my surprise, I saw Azizi Development was spending more resources on marketing and advertisements while the most important aspect – construction and delivery activities were neglected,” Farhad Azizi, explains.
“The most important aspect of a property development business is to deliver properties on time and on promised quality. People invest their life savings in buying their dream home. For most families, home is the largest investment. It is important for a developer to meet its obligations – deliver home on time and as per quality according to the sales and purchase agreement.
“However, at that time, I felt that we were not focussing enough on construction and delivery and more resources were spent on marketing and branding exercise. So, I decided to change the course and sharpen our company’s focus on development activities and deliveries. Till then, our delivery record was poor – although we had been in business for more than a decade, by then.”
Since the company was run by Mirwais Azizi, his father, Farhad to seek his guidance on changing the direction.
“My father approved my suggestions and authorised me to readjust our strategy to the new ground reality. That’s all I did. When I assessed the economic situation and the outlook of the real estate market and the structure of the company and various departments within the organisation, I felt a need to overhaul the company in order to streamline operations and improve efficiency,” Farhad Azizi explains.
“I had to make two important choices in order to make the company more productive and more focussed – to change the focus of the business from marketing and branding to construction and delivery. The key is to make it more efficient and customer-centric. This meant that I would have to make some tough decisions – painful and unpopular.
“When I looked at every department within the company, I found multiple layers – six to seven layers in some departments – that could be reduced to just two or three. That’s exactly what I did. I reduced it to the natural size so that there is less bureaucracy and more productive people with added responsibilities.
“There were more people with less activity per person and thus, there were less productivity across the board. Now things are in the right shape and right order.
“It’s not an easy task to let people go. But it was the need of the hour – in order to make the company more efficient and serve our clients. We reduced headcount in phases from 2,234 to just 700 people. At peak, we had a sales team of 1,000 people. Now we have just 100.
“Besides, I have reduced the number of overseas offices from 30 to just 4 international offices. We also invested heavily on information technology and created a transparent working environment that makes everyone accountable for their works, or lack of it.
“Every phone call is tracked and there is a call-back mechanism to check if the grievances of a customer has been attended to or been solved. We now monitor everything through the IT interface created for the company.”
Earlier this year, Azizi Developments strengthened its board of directors with the appointment of Dr Bettina Eisenaecher and Jurgen Fischer – two Non-Executive Directors to improve corporate governance standards of the organisation and create long-term value by leveraging their expertise in organisational engineering and transformation.
Dr Bettina Eisenaecher and Jurgen Fischer have extensive international and UAE expertise as senior executives and non-executives at industry-leading real estate developers, and outstanding knowledge in risk management and controlling functions of market-leading-listed corporations.
Although Azizi Development had to face negative publicity for making people redundant, however the re-engineering of the company appears to pay off.
“While we used to sell 10 homes per day at this time last year – with a large sales force of 1,000 sales professionals, we are now selling 15 homes per day with 10 percent people in the sales team. So, in addition to reducing manpower, we also made every team more effective and customer centric. One year down the line, the company is more efficient, agile and productive,” he says.
“We want to be competitive and in order to do that we needed to be lean, efficient, focussed and customer-centric. I also felt that project delivery is the best way to marketing and building the brand equity. You could spend a lot of money in publicity, print and digital advertisement and on billboards, but if you can’t deliver promise, then all these publicity will come back to haunt you. But if we deliver promises, then we might not need publicity – as our customers will be our brand ambassadors.”
Azizi Developments earlier said it had recorded a sell-out response to its highly sought-after properties in Al Furjan, Dubai’s high-growth corridor with superb connectivity to the entire city.
It announced that all residences in 10 of its 22 Al Furjan projects have been sold out, with only some recently-released unit types still being available in the remaining buildings. This underlines investors’ high demand for affordable premium homes with excellent connectivity.
“Al Furjan is undoubtedly becoming one of the most desirable addresses in the emirate, signified by rental prices already being on the rise. Our research finds that location remains the single most important factor to our customers – it has an incredibly profound impact not only on residential lifestyle, but also on rental yields and value appreciation. We are proud to have 22 developments in this blossoming area, with many more to come,” Farhad Azizi said.
Farhad Azizi says, he has achieved 90 percent of the re-structuring so far. Another 10 percent will take a few more months.
“Over the last two years, we focussed on construction and delivery of projects while reducing marketing and branding activities drastically. As a result, we have so far delivered 14 projects worth Dh5 billion – most of them within the last 24 months. When property buyers started to receive keys and handover documents – I felt repeated sense of satisfaction,” he says.
“Every time a buyer received the key, the smile on the face boosted my self-confidence and motivated me to sharpen our company’s focus on development and delivery. Property deliveries of each project are our biggest marketing and branding exercise.
“We now have a few thousand happy customers holding the keys to their dream home – many living in them while others benefitting from high rental returns. All these properties are located at Al Furjan – one of the closest communities to Expo 2020 through which the new Dubai Metro line will pass by. Besides, the community is just ten minutes away to the new Al Maktoum International Airport through Dubai Metro.
“Prices of the apartments that we have delivered so far are going to appreciate as we move closer to Expo 2020. This is one area of satisfaction for us as a developer. Almost all our properties maintained their values as we speak.”
At its peak, Azizi Developments had 200 projects under various stages of development and planning. That is a huge undertaking for a private developer. Farhad Azizi says, the year 2019 is a year of construction and delivery – for his company. It has delivered 1 project this year, so far.
“We are going to deliver 7 more projects by December this year,” he says. “We are also putting finishing touches to the Phase I of the Dh12 billion Azizi Riviera project at Meydan, which will be delivered in the first quarter of 2020.
“From now on, every year will be a year of construction and delivery – our core business and will reflect our core competency.”
He says, in order to achieve excellence, he needed to work relentlessly for his employees, his team.
“While I work for the employees of the company, they in turn work for the customers – for customer happiness. My job is to make my colleagues happy – so that they can make the customers happy,” he says.
“With the restructuring now almost complete, I can see the results. I now can breathe properly.”
Azizi Developments has Dh45 billion worth of projects under various stages of construction and development that will keep the company busy till 2025. However, the developer can only focus on a limited number of projects at a time. That’s why Azizi Developments has restructured its project delivery pipeline of 200 projects.
The company is currently constructing those projects that have either been sold out or part of them sold out to customers.
“However, projects that we did not launch or did not sell, we are differing their construction so that we could complete and deliver those projects where we have made commitment to investors on construction and delivery,” Farhad Azizi explains.
“This by no way means that these projects have been shelved.”
Oversupply, What Oversupply?
According to industry reports, more than 60,000 new homes will be delivered in Dubai in 2019 and 2020 – as the emirate prepares for the World Expo 2020 mega event.
“The supply glut is considerable. In 2018, about 43,000 units were added to Dubai’s total residential stock which stood at around 491,000 units at end of 2017, and about 8,000 to the Abu Dhabi market – 251,000 units at end of 2017,” Jones Lang LaSalle (JLL), a global real estate advisory, said in a report.
According to a recent report by global property management advisory Knight Franks, rental rates across Dubai fell on average by 7.7 percent in the year to November 2018 with apartment rents falling by 8.4 percent and villa/townhouse rents by 8.3 percent over the same time period.
Gross yields in Dubai currently stand at 6.27 percent as at November 2018, down from 6.45 percent a year earlier, this is as a result of rents declining at a faster pace than sales prices over this time period, the report said.
When asked how he saw the current market situation with a possible oversupply or housing glut, Farhad Azizi, Chief Executive Officer of Azizi Developments, says, “Oversupply, what oversupply?
“I keep hearing people talk about oversupply. But we have seen property sale has picked up this year – compared to last year,” he says. “However, we are selling more properties this year with a much smaller sales team, than what we used to sell with a sales team that was ten times larger than the existing one.
“So, properties are being sold and there are buyers. Where they are coming from, I don’t know. But is definitely an increase in sales this year.
“There is also another reason why properties in Dubai will continue to sell, regardless of the level of supply or oversupply. That is Dubai has now become a global centre – connected to more than 240 cities across six continents. I don’t think there is any city that offers direct air connectivity to so many cities across six continents.
“Besides, the city’s infrastructure, civic facilities, liberal economic environment and the quality of life will continue to attract investment. The latest sets of reforms, ease in obtaining visa, 100 percent foreign ownership of companies, property-linked residency visas and reduced cost of living makes Dubai more attractive for living, working and investing.
“Perhaps all these combine factors are encouraging people to invest in the UAE’s real estate market and we can now see a buying trend. If the prices continue to decline, the new demand will absorb all the inventories – any extent of oversupply. So, we see a great way ahead!”
In an exclusive interview with the Gulf Property, Farhad Azizi, Chief Executive Office of Azizi Developments, elaborated his thoughts. Excerpts:
Gulf Property: What is your view of the current real estate market situation in Dubai and the UAE?
Farhad Azizi: The times are tough. We are seeing lower demand across the board. The margins are shrinking. However, there is business even in difficult times and we are in business.
Real estate is a long-term business. People with short term plans should not be in this sector. We are a serious player and we are here to contribute to the UAE economy by offering a greater value proposition to our clients with high-quality property that offers sustainable asset appreciation.
Like every other sectors, the real estate market is also undergoing ups and downs. These are natural economic cycles – some linger more than others.
However, we should adjust our minds and business activities to a low-margin, lower-yield environment that requires strict disciple, sharp focus and cost-effective management approach. There isn’t much room for manoeuvring and certainly no room for errors.
People talk of an oversupply. It might be. However, Dubai’s real estate market will be able to absorb the extra supply – if any. Already prices are at rock-bottom and lucrative enough for investors to snap them.
How long do you think the current situation will prevail?
We are perhaps at the end of the tunnel and we could see some lights at the end of the tunnel. As I mentioned, our sales have increased this year, compared to last year. So, I am hopeful of a recovery by the end of this year.
With World Expo 2020 knocking at the door, the next year will see a growth in demand. However, a lot of it depends on external factors – the growth in global economy and the socio-economic and political situation in the Gulf region.
What should the real estate developers do in order to navigate out of the crisis?
The current market situation requires careful evaluation of the business plan, costs, income and expenditure – the basics. It requires a disciplined approach, which I am sure all developers are conscious about.
The most important thing is to focus on construction and delivery of those properties that the developers have promised to deliver as per the sale and purchase document. Timely delivery will ensure timely payment of the price of the property and that helps the developer to make its own payment obligation to contractors and suppliers and benefit from the margins.
However, if the project is delayed, then the receivables get delayed and the cash flow gets affected. So, sale, construction and delivery are crucial and these help all stakeholders.
The second aspect is to cut cost and make organisations lean and productive. ‘Doing more with less’ is the name of the game. We have done our bit in our company and we can see the results. If one person can do the job of two, then why hire two people?
In a nutshell, companies will have to be competitive enough to continue doing business in a tough economic environment.
Could you tell us about the number of projects delivered by Azizi and their value?
We have delivered 14 projects in Al Furjan so far and one in Dubai Healthcare City, known as Azizi Aliyah. The development value of Azizi Aliyah is Dh470 million.
The total value of Azizi’s all the delivered projects would exceed Dh5 billion.
Who is managing the 14 projects handed over to the clients?
We have created Owners’ Associations to manage each project, at the request of our clients. We have successfully reduced the service charges to Dh11 per square feet, down from Dh18 per square feet.
What is the development value of the projects under development and construction?
We have more than 200 projects under various stages of planning, development and construction, with a combined value to the tune of Dh45 billion.
What is the status of Azizi Rivera – your first master-planned community that is being constructed at Meydan City? There are talks of delayed delivery?
Contractors are working on site to deliver the project and the first half of the Phase I will be delivered by the end of this year and the other half will be delivered in the first quarter of 2020.
Azizi Riviera is a master-planned mixed-use community and our first such large-scale project in the UAE. Once completed, it will see the development of 16,000 residential units spread across 71 buildings in Meydan City next to Al Khail Road.
Such projects require rigorous and meticulous planning that keeps changing as we move ahead with construction. The project is currently on track for delivery – with the first Phase to be delivered by the first quarter of 2020.
Could you tell us about your real estate business in Afghanistan?
I look after the UAE operations of Azizi Developments. Our other businesses are looked after by my father Mr Mirwais Azizi and his colleagues.
In Afghanistan, we have delivered three townships with 15,000 units and plots of land as well as six shopping malls.
We developed Azizi Plaza – the tallest and Azizi Centre – the largest building in Afghanistan.
