Cluttons sees surge in feasibility studies
Dubai, September 12, 2012
Leading regional real estate specialist, Cluttons, has noted a surge in demand for feasibility studies in the UAE over the past few months.
As a reflection of Dubai's gradually improving real estate market, Cluttons has witnessed a noticeable pick up in feasibility activity and due diligence being undertaken by developers and investors into projects currently on hold or previously cancelled, with the numbers being under close scrutiny once more, a statement from the company said.
Jonathan Fothergill, director of UAE valuations at Cluttons, said: “Clients are requesting everything from considering the feasibility of the refurbishment of a residential apartment building in Deira to looking at the feasibility of substantially expanding or refurbishing an existing shopping mall.”
In recent months, the pick-up in developer activity has been particularly noticeable in Dubai. For example, Nakheel has commenced development works on apartments, villas and retail on the Palm Jumeirah as well as initiating expansion of both Dragonmart and Ibn Battuta malls and the development of community malls.
Other examples include Emaar commencing a new residential project in the Greens whilst considering the expansion of Dubai Mall. Grand Habtoor is also starting work on a major hospitality project on the site of the former Metropolitan Hotel on the Sheikh Zayed Road.
Market feasibility studies typically involve testing geographic locations for a real estate development project, and usually focus on parcels of vacant real estate land or existing properties in need of change of use or refurbishment.
Developers often conduct feasibility studies to determine the best location within a jurisdiction and to test alternative land uses for given parcels, the statement said.
City authorities and financiers often require developers to complete feasibility studies before they will approve a permit application for retail, commercial, industrial, manufacturing, housing, office or mixed-use project. Market feasibility takes into account the importance of the business in the selected area.
Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an existing or proposed real estate project, opportunities and threats as presented by the environment, the resources required to ensure completion and ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained, it said.
There are a number of parameters for judging the financial viability of a new project - total estimated cost of the project; financing of the project in terms of its capital structure, debt equity ratio and promoter's share of total cost; existing investment by the promoter in any other business; projected cash flow and profitability; analysis in terms of net present value, internal rate of return, profit on cost and payback time.
Steve Morgan, head of Cluttons in Dubai,said: “Feasibility studies are key to successful investment and development in a maturing property market. Like valuations, consistent and reliable feasibility studies are essential for sound financial decision making, performance analysis, transactions and providing proper development advice.”
“On-going problems in the local real estate market have highlighted that an inability to understand the market value and feasibility of real estate projects can have negative consequences. In particular, we see severe impacts on the market when loans are offered to developers based on credit rating as opposed to market value and feasibility.”
“In Dubai in particular, we have a legacy of developers and financiers clinging to the misguided belief that supply will generate demand, which has severely impacted the residential and commercial markets,” Fothergill said.
“Also evident is that a number of unnecessary projects would never have come to fruition if reliable feasibility studies were undertaken prior to financing. In this manner, feasibility studies play an important role in minimising risk through informing financiers of viability factors. Cluttons in the Middle East encourages international best practice and therefore prudent lending practices,” he concluded. – TradeArabia News Service
More Construction & Real Estate Stories
- Work to start on Bahrain beach project
- Damac launches luxury apartments at Expo site
- Kuwaitis top GCC property buyers in Oman
- Rubber World to showcase at Big 5 Saudi
- Tool to help create effective property listings
- 'Smart' move by Dubai Design District
- Drake unit wins $13m contract in India
- Solar-powered cleaning boats launched in Sharjah
- $27m Expo Hotel Sharjah deal signed
- Arabtec unit wins $282m Emaar contract
- Abu Dhabi to host pool & spa expo
- ADCM unit secures $213m bridging loan
- Cluttons Dubai launches new luxury apartments
- Dubai developer Damac profits triple to $641m
- Dubai to start work on $544m water canal
- Dubai property market can absorb 25,000 units
- Jones Lang LaSalle renamed 'JLL'
- Aldar raises synergy estimate from Sorouh merger
- UAE industrial property sector keeps up growth
- Dubai residential property prices up 26pc
- Majid Al Futtaim to build new mall in Dubai IMPZ
- 300 firms to take part in Dubai property forum
- Naseej inks deal to develop Bahrain projects
- Dadabhai unveils new residential project
- Flowcrete completes Dubai Mall project
- Global asphalt demand hits new high
- $1.3bn infrastructure investment firm set up in Saudi
- Manara sees big project villa success
- Global giants eye RAK utility projects
- Cayan partners with international artist Zsuzsanna