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Sell-on clause settles nerves in Dubai real estate

Apr 08

Sell-on clause settles nerves in Dubai real estate

Buyers are attracted by growth prospects outweighing downside threats.

One of the UAE’s biggest real estate brokerages has introduced a new initiative to settle the nerves of anxious sellers and buyers in the Dubai property market.

The All Weather transactional structure launched by f?m Properties eases the concerns of property owners that by selling when market prices are low they could miss out when prices rise.

It is based on an agreement in which both parties in a property deal agree to share the net profits on a resale within three years. Buyers are attracted by growth prospects outweighing downside threats.

Firas Al Msaddi, CEO of f?m Properties, said the company has already brokered one such agreement for the sale of a AED100 million residential building in City Walk, Jumeirah.

“Using the same concept on behalf of other investors, we’re now in the process of customizing two similar large transactions with one of Dubai’s biggest developers,” said Al Msaddi.

In a typical deal of this kind, an owner who values his property at AED10 million may accept an offer of AED8 million to free up cash. But his agreement with the buyer guarantees he gets 50% of the profits on any resale within the next three years.

If the property is sold for more than AED10 million, the seller’s share is capped at 125% of the difference (AED2 million) between what he paid and the initial asking price.

“Missing out on rising market prices is what sellers fear most in real estate as in other areas of business,” said Al Msaddi. “The risk is higher for building owners who know that unit prices may climb over the next two to three years.

“The new transactional structure gives them cash to reinvest as well as a share of future profits. At the same, buyers acquire property at attractive rates knowing prospects for growth far outweigh any downside risks.

“Developers have been very receptive to this initiative and we’re receiving enquiries from major players in the industry.”

zawya