Riding the Real Estate Cycle: Building Capabilities for a Sustainable Future [Report]

by wamda, May 20, 2013

This report, published by Booz & Company, explains the Arab world’s property market bust that exposed deep structural prob­lems in the region’s real estate development.

The report reveals major errors made by developers that led to the market's downturn, while offering a prescription for a more balanced and stable real estate market going forward. By following a market-driven approach to real estate development, the report concludes that the market will stabilize and new construction will move forward alongside real demand.

Major mistakes outlined in the report include:

  • No focus. Developers grew in all directions with unfocused business models targeting a range of assets in different countries, as well as multiple segments and classes.
  • Not profit-driven. Not having to worry about commercial capabilities and profits given the buoyant market, develop­ers rushed to deliver.
  • Poor risk-management. Most regional players had volatile revenue streams and managed risk poorly—depend­ing excessively on property sales, as opposed to recurring income from leasing and other operations.

Recommendations for moving forward:

  • Focus. Developers must first decide what kind of developer they want to be and where to operate on the real estate value chain.
  • Identify real opportunity. Developers should master their chosen markets, and understand all components of the real estate ecosystem so that they can identify and pursue attainable growth opportunities and create sustain­able value.
  • Follow a balanced plan. Developers should manage their exposure to market risk better by seeking more balanced revenue sources, and elaborating clearer investment and development guidelines.
  • Deliver on what matters. Real estate players should start developing a set of core capabilities (e.g., opportunity identi­fication, development, asset manage­ment) to deliver sustainable value.

Check out the full report’s findings by downloading it from the grey box on the right.

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