A Dubai real estate company has come up with an innovative sell-on clause to help ease sellers’ fears that they may lose out by selling property too cheap.
The new All Weather transactional structure sell-on clause 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 also means that buyers, including overseas property investors, can benefit from purchasing at discounted prices.
Based on similar arrangements used by football clubs when transferring players, 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.
When Chelsea let Kevin De Bruyne leave for a small fee to go to Wolfsburg they ensured that a sell-on clause meant they would gain from a future lucrative transfer.
Sure enough, De Bruyne shone in the Bundesliga prompting Manchester City to swoop in for £55 million, gifting Chelsea an extra £10 million from the sell-on clause.
Not all clubs were so forward thinking however. Southampton failed to negotiate a sell-on clause when Gareth Bale went to Tottenham, losing out on around £20 million when he was then sold on to Real Madrid for the then World record fee of £86 million.
The property sell-on clause introduced by fäm Properties means that sellers can benefit from future profits within the next three years.
In a typical deal of this kind, an owner who values their property at AED10 million may accept an offer of AED8 million to free up cash. But their agreement with the buyer guarantees they get 50 per cent 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 per cent of the difference (AED2 million) between what they paid and the initial asking price.
Firas Al Msaddi, CEO of fäm Properties, said: ‘Missing out on rising market prices is what sellers fear most in real estate as in other areas of business. 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.’