Executive explains how the Indian developer is establishing its presence in the Dubai real estate market
“If you want something done right, do it yourself” is a phrase often heard when it comes to carrying out complicated or delicate tasks. In a real estate market as competitive as Dubai’s, it is a sentiment many a construction company can take to heart. Faced with mounting price pressures and squeezed margins, developers have to be very careful with whom they partner on their projects.
As a result, choosing the right contractor or subcontractor can make or break a project, with the wrong choice likely to cause delays, increased costs and continued wrangles during the construction process. This helps no one, and is the main reason local and regional developers continue to have a select list of preferred partners whom they know they can rely on.
However, one Dubai-based developer is choosing to go down a different route, embracing the full-service model and providing its clients with the entire package, from concept through to construction and finishing, through its various subsidiaries.
“We’ve evolved into a fully backward integrated real estate developer,” says Raj Chinai, managing director of Sobha Group. “We’re the only company in the world that is fully backward integrated. This involves a fairly complex business model, where all elements of the value chain are controlled by us. Everything from interior design, through to construction delivery. Essentially, all touch points are controlled by us.”
“We literally have everything, from floor to ceiling – it’s controlled by us. If you look across the spectrum of real estate development companies – not just in this part of the world, but globally – there’s no other company that has this model. Some companies have tried it and it’s not worked out, others have a similar model, but it’s not the entire value chain.”
Set up in 1976 by PNC Menon, the company started out as an interior decoration firm called Services and Trade Company in Muscat, Oman. Since then the group has grown into a multinational, multi-product group, with interests in contracting, technology and architecture, among many others.
Crucially, in 1995, the company’s engineering and contracting arm – Sobha Engineering & Contracting LLC – was set up, followed by the company’s real estate division – Sobha Real Estate LLC. This allowed the company to begin its property development operations, initially in India, before expanding to Dubai with the Meydan Sobha joint venture, which was signed in 2013. This was then followed by the launch of the developer’s flagship development, the 734,224sqm Sobha Hartland project in 2014.
“We have a business in India which we call, for all practical purposes, Sobha India. It is a publically listed company and we had an IPO in 2006, which was 127-times oversubscribed. That business began 22 years ago by PNC Menon, Shoba India’s founder and chairman emeritus,” says Chinai, speaking to Big Project ME at the Sobha Hartland Sales Gallery. “In 2012, Sobha India was handed over to his son, Ravi Menon, who is the company’s chairman. Through that company, we’re fully focused on India. We’re in every major city in India, except for Mumbai.”
“Coming to our presence here, which we refer to as Sobha Middle East, Mr Menon has been a resident of Dubai for the last 13 years. In the initial years, we began doing a lot of contract work. Since then, we’ve evolved into a full backward integrated real estate developer with the launch of two projects – Sobha Hartland, where we’re developing a township, while the second is the joint venture between Meydan and Sobha, which is known as District One and is being built on 4,180,636sqm of freehold land.
“Sobha Middle East is a private company, with a focus on all non-India initiatives. So that means anything that is launched in the international market, be it Dubai, the UK or any other geography outside India,” Chinai elaborates.
Turning the conversation to the company’s performance in 2016, Chinai says that although market forces have affected the local and regional construction industry, he feels that Sobha’s business model has protected it from the worst effects of the drop in oil prices. In fact, he says the progress made this year on Sobha Hartland has allowed the company to firm up sales and show the market what it has to offer.
“The past year has been an exciting one for us for a couple of reasons. Firstly, we launched our model villas and apartments at Sobha Hartland. This has enabled us to give potential customers and investors a good feel of what it is that we’re actually delivering,” he says.
“What’s happened with us this year is that through the ability of our customers to actually come in and see the product, they’ve come to appreciate what is actually different about Sobha in terms of our capability to deliver a differentiated product. This core differentiator is in a large part driven by our distinctive business model.
“From my perspective, our business model allows us to push the bar in terms of delivery quality at a level the market has not yet seen,” Chinai asserts.
While the backward integrated model was developed for the Indian real estate market, it can be replicated for Dubai. However, because of the high-end nature of the Dubai real estate market, Sobha has had to tweak the model slightly to fit in with expectations and specifications.
“In India, what we would define as luxury is where we’re delivering a luxury product for the Indian market. In Dubai, the definition of luxury and what it means is very different. In a sense, that means that the specifications we have to deliver to in Dubai are very different.
“Delivering this type of product [Sobha Hartland] to the Indian market wouldn’t make sense at scale, because it wouldn’t match the demand and price points that would make sense for India. So we’ve had to calibrate the model to fit with very high-end specifications, because the local luxury market demands that,” he concedes.
“We recognise that we’re a relatively new entrant in Dubai, where several top-tier groups exist with longer track records, but despite our nascent phase of growth, we also have an extremely long and successful track record of more than 40 years, during which we’ve established a legacy of developing and delivering very high-end products to the market.”
This track record refers to PNC Menon’s background. The first iteration of the company was as an interior decorator for very high-end projects, such as palaces, five-star hotels and mansions. Known in certain circles as the ‘palace-maker’, Menon’s expertise has been passed down through the company, putting it in a strong position to deliver high-end villas and apartments to quality-conscious customers.
Although there is a general sense of unease at the way the market performed in 2016, Chinai looks at 2017 with some optimism, pointing out that it is only natural for the market to experience some highs and lows over the course of time.
“We have four decades of seeing different cycles and experiences in different markets. We’ve operated in different cities in India, we’ve observed what’s been happening in Dubai from afar before we entered, and we’ve looked at markets like London,” he explains.
“What we feel is that as long as you have the proper financial engineering, then the mature players in the market will survive. Those that are not properly financially engineered will have a difficult time staying in the game.
“We are hopefully coming out of what I would call a soft market. We have seen cycles play out in Dubai before, and for us, the down cycle began in the second half of 2014. Our internal philosophy is that we see two and a half years of a down cycle, followed by two and a half years of an up cycle. That could be plus or minus six months, because it’s impossible to have a crystal ball!”
Moving into 2017, Chinai expects to see the positive cycle start in the coming months, with overall market sentiment continuing to turn for the better. Given the way Sobha Hartland has been performing, he says there is already significant traction in the market.
“I think a lot of this market is sentiment driven. We are approaching 2020, which has a certain ramification on how people perceive when it’s a good time to get in. We see a lot of people who have been looking for the bottom and are now sensing that we may have touched the bottom on pricing, and that this is a good time to get in.
“And at the moment, you’re starting to see key individuals, or what I would call key influencers, entering the market. There’s a little bit of a herd mentality, depending on the project. In luxury real estate, we tend to see this at times – if one or two influencers invest in a project, then there is often a larger following of like-minded individuals who get motivated to also enter into the opportunity,” he adds.
Chinai thinks 2017 will also offer a clearer picture as to what Dubai has to offer for the broader region. With Dubai situated in a key central location, he believes a return to form for the city’s real estate market will see increased interest from investors from further afield.
“Dubai occupies a very special place on the global stage. If you look at where we are geographically, we cater to half the world’s population. If you look at the key markets – the Indian subcontinent, the Middle East, Africa and the CIS countries, that’s about three billion people. We don’t foresee any other city that can compete with Dubai in the next 15 years, from any of the neighbouring geographies,” he asserts.
“I think we’re starting to see people realising the strength of Dubai – in terms of its infrastructure, in terms of quality of living and in terms of the forward thinking that the government has had, thanks to His Highness Sheikh Mohammed bin Rashid Al Maktoum, as well as the overall culture of innovation and entrepreneurship that we see across all sectors of Dubai’s economy.”
Comparing this vision to that of Lee Kuan Yew of Singapore, Chinai adds that as Dubai continues to mature, the awareness of the city’s attributes will grow, meaning that Dubai will continue to remain an attractive investment destination for individual and institutional investors from across the world.
What this means for Sobha Middle East is that the company is now looking at ways to grow its presence in the Dubai market. While District One and Sobha Hartland will be the immediate focus for the near future, Chinai reveals that another project is in the pipeline for the developer.
“Firdous Sobha is an island project in Umm Al Quwain. It’s a joint venture with the government of Umm Al Quwain and it reiterates our commitment to the UAE. We’re extremely committed to Dubai, to the UAE and to the region, and this just reinforces that.
“We do have a third project in Dubai as well, details for which I cannot share yet, but it will be another significant Dubai-based project, focused on affordable luxury. In essence, it will cater to a broader spectrum of buyers and investors than our existing projects. It’s going to be at the scale of Sobha Hartland, if not larger,” he concludes.