Dubai: The building materials company Danube has confirmed plans to get into real estate development, with its first being a Dh250-500 million mid-tier residential project in Dubai.
Multiple locations are being considered, including Meydan City, Jumeirah Village Circle and Al Furjan.
A confirmation is expected by April or May, which could also be the time when the soft launch could start.
“It’s a conscious decision to go with a mid-priced project rather than an upscale one; what it does is speed up the entire construction and marketing process and help us create an understanding of being a developer,” said Rizwan Sajan, chairman. “Even though synergies are there between construction and realty development, we had never given it a thought earlier as price movements were going crazy until 2008.”
Negotiations are on with master developers to acquire a land bank. Once the first project starts rolling, the plan is to mobilise another one within a span of a few months and thus keep the pipeline active. A separate company will oversee real estate development.
“There is room for a new developer to make a mark; currently you have an Emaar, Nakheel or a Damac and then there’s a big vacuum,” said Sajan. “Where our core activity in building materials helps is on our cost of development — I foresee a 10-15 per cent cost benefit and that will be passed on to the investor.”
In fact, there is a trend now for construction companies to try their hand at development. Arabtec has just set up a property subsidiary, and contractors are also starting to take up direct equity in a project in lieu of upfront tender fees. For developers too, this is a winning hand as this ties in contractors’ interest across the duration of the project and once it is completed as well.
For its project, Danube plans to bring on board banks that can offer competitive mortgage deals to buyers. “A couple of banks are talking to us. The way we want to structure the marketing and selling of units is attain 30-40 per cent sold through the soft launch phase and then come in and put out a strong message to the market,” said Sajan.
“With future projects, we can make a move on creating more upscale properties and create an identity for the brand.”
As for its building materials division, the focus will continue to be to reduce reliance on sourcing from China.
“It now stands at 50 per cent and what we have done is start sourcing more from factories in Spain or Greece,” he added. “Many of these are operating at minimal capacity utilisation and there are pricing gains accruing to us from placing orders with them. For wood, we are placing orders from the US, Canada and Germany.
“It does not mean we will ignore China…but we do not want to be in a situation where there is over-reliance on one source. Multi-sourcing means if a deal is not favourable, we can just walk away.”