New fäm Properties transactional structure gives sellers share of future profits, eases downside fears for buyers
Football stars like Real Madrid’s Gareth Bale and Chelsea’s Cesc Fabregas have helped inspire a new move in Dubai real estate to settle the nerves of anxious sellers and buyers.
It is based on the sell-on clause which football clubs insert into the contracts of their most promising young players to ensure they get a piece of any subsequent transfer fee.
The new All Weather transactional structure introduced by fäm 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 fäm Properties, says 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.
In one of football’s famous sell-on deals, Arsenal earned £5.6 million when former player Fabregas was sold by Barcelona to Chelsea for £30 million in 2014.
But Southampton lost out on £20 million after Bale joined Tottenham Hotspur without a sell-on clause in place and was later sold to Real Madrid for £86 million.
“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.”