Property developers in the Middle East and North Africa (MENA) region need to learn from mistakes exposed during the boom and “focus more on creating value than simply erecting buildings”, according to management consultancy Booz & Co.
The firm said that if developers are to recover from the previous slump and deliver “sustainable, risk adjusted returns”, they need to learn from past mistakes made during the boom.
In the newer markets, like Dubai and Abu Dhabi, problems were incurred as developers expanded rapidly and had “unfocussed” strategies – trying to develop across different property segments and geographies while trying to build their own value chain at the same time.
They also rushed to deliver properties quickly – sometimes at higher costs which neglected value creation. In addition, they had volatile revenue streams and gave insufficient consideration to risk management said the report from Booz & Co.
Booz & Co argues that developers in the region should not seek to emulate their peers in other parts of the world, but develop their own strategies aimed at building firmer foundations.
These include rethinking their own role, and deciding what type of developer they want to be – a master developer of major communities, a property developer who takes space within those communities for individual projects or a fully-fledged developer who handles both aspects.
They should also be ready for the next downturn and try to balance between assets they can sell and those they can keep over a longer term to provide regular income flow.
“Developers should rethink their portfolios and pipeline of projects – and balance between building assets to sell and monetize versus building assets to maintain for the long term – to secure a safety net against the next downcycle,” said the consultancy firm’s partner, Fadi Majdalani.
“Boards should also intervene by setting and monitoring, if required, financial metrics to ensure that the organization can survive a market downturn.”
Booz & Co’s Principal Ramy Sfeir also argued that the most profitable buildings should be the ones that are most valued over those that are focused more on design or rapid delivery.
“In the future, it will become more important to construct the most profitable assets, and then actively manage them to ensure continuous value creation,” he said.
“Being commercially strong will be more imperative than being architecturally appealing.”