Arrival of large US brokerage firm a boon for the local market
Despite the real estate market’s subdued performance, one of the largest brokerage firms in the US opened up a new office in the emirate, which is expected to boost investor confidence and reinvigorate the sector. In May 2019 Berkshire Hathaway HomeServices (BHHS) announced its arrival in the Middle East market with the opening of a new office in The Greens. The UAE has become its fourth overseas market, following London, Berlin and Milan.
The BHHS’s decision is a major confidence boost for the sector, which has seen prices slump in recent years. The BHHS office will house a team of 30 real estate advisors, and the brokerage has struck a franchise deal with local firm Gulf Properties. The US firm is also planning to open an office in Abu Dhabi within a year of the Dubai opening, as it seeks to expand its presence across the UAE.
Phil Sheridan, CEO of the BHHS, indicated in April 2019 that the firm will not only focus on US investors but instead look to tap into the wider overseas market. “There were 16,000 overseas buyers acquiring property in Dubai between January and June 2018 for $10bn. There will be more of them, and that is who we will target,” Sheridan told regional media.
Since opening its Dubai office, the BHHS has aimed to strike deals with up to 30 mid-sized brokerages, which seek to benefit from the US firm’s larger reach. While offering a broader range of listings when selling on behalf of developers, the brokerage company suggested that it will focus on selling high-end properties valued at Dh3m ($817,000) or higher when representing individual sellers.
The market conditions for brokers has improved due to the difficulties that developers have faced in attracting homebuyers. As a result, brokers have been offered greater incentives to assist developers, such as an increase in the commission rate from 2% to 5%. “You had developers set up their own sales teams and try to scout for buyers,” Sheridan told international media in April 2019. “That has not been working too well, however, which is why they have come back to offering brokers more incentives.”
Beyond personal investors, the BHHS hopes to benefit from institutional investors looking to gain a foothold in Dubai. Within the first few months of opening its international offices, the company reported that it received much interest from real estate investment trusts, government agencies and private equity investors. Thus, the BHHS plans to set up a dedicated advisory team for such institutional investors by the end of 2019. “There is no doubt that because of the fall in the real estate market in recent years, there are opportunities for institutional investors,” Sheridan told regional media. “The financial backing of our parent company Berkshire Hathaway allows us to go beyond brokerage, as we work to create one of the most successful property agencies in the UAE.”
The firm is also interested in expanding into the overseas investor market, which has diversified beyond European and US buyers and into the Asian market. Alongside an uptake in foreign investment, the success of the BHHS’ arrival in Dubai rests on the emirate’s rapid population growth, which surpassed 3m in 2018 and is expected to rise to 5m by 2027. Given that expatriates account for 92% of Dubai’s population, the UAE’s easing of visa restrictions in 2018 also bodes well for further population growth.
Warren Buffett, CEO of Berkshire Hathaway, has built a reputation on acquiring assets in turbulent markets and on his preference for long-term outlooks. Thus, the BHHS’ entry into Dubai will help shore up investor confidence in the emirate and raise hopes for a return to higher growth levels. Moreover, with completion slowing in 2019 as developers look to sell off existing stock, Buffet’s faith in the Dubai market suggests that a rebound is likely, whereby the supply of property will not be able to keep up with demand.