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Breaking Free from Accounting Shackles

Unleashing the Full Potential of Legacy Property Investments


Real estate investment decisions often stand at the crossroads of two divergent approaches: accounting restraints and strategic goals. For a client embarking on a real estate development project, this choice can make all the difference. here, we will explore why focusing on strategic goals should take precedence over accounting restraints.



Accounting vs Strategy: mostly friends, but sometimes, fierce enemies

Accounting restraints, rooted in historical values, can limit a real estate investor's perspective. These restraints are typically bound by book values and depreciation schedules, which can lead to conservative decision-making. When solely focusing on accounting restraints, investors may overlook the growth potential that strategic decisions can unlock.

On the other hand, strategic goals in real estate take a forward-looking approach. They emphasize future potential and value creation rather than dwelling on past accounting entries. Strategic investors are more likely to embrace innovation, leverage market trends, and plan for sustainable growth.


Many developers in Dubai and around the UAE are holding legacy assets from the pre-2008 era, that suffer from multiple accounting issues such as very high valuations/book values. Many developers today are choosing to forgo the losses on the books in favor of proceeding with projects, releasing the dead capital stuck in the asset for years, and realizing actual cash flows through the launch and sale of projects.


It is the case more often than not, that a project and the capital investment is stuck for many years, and the investors/developers are awaiting for the market to recover so it doesn't look bad on their books. But the more prudent choice can be to realize the loss on the books, release the capital, and re-invest it in more profitable projects/initiatives.


Sadly, it's a mental cage that leaders can get stuck in, especially after having seen a project turn to losses. It is much less likely for them to take a chance again.



Focusing on Strategic Goals

The advantages of prioritizing strategic goals over accounting restraints in real estate are multifaceted:

  1. Enhanced Profitability: Strategic investments often yield higher returns, increasing profitability.

  2. Actualizing cash-flows: realizing the cash-flows from the book value of assets by selling/enhancing the asset. In other words, releasing the stuck-up capital in the assets.

  3. Increased Property Value: Strategic improvements to asset (by developing, remodeling, re-design, etc.) can significantly boost property values.

  4. Diversified Revenue Streams: Innovative strategies can diversify income sources, reducing risks.

  5. Futureproofing: Strategic decisions align with long-term market trends, future-proofing investments.

  6. Sustainable Growth: Long-term strategic planning fosters sustainable growth.

  7. Improved Risk Management: Forward-thinking strategies mitigate unforeseen risks.


Conclusion..

In the world of real estate, the choice between accounting restraints and strategic goals is a pivotal one. By embracing the latter, investors/developers position themselves for success in a competitive market. Adding value to properties (through development/re-development) can be a game-changer, leading to enhanced profitability, competitive advantage, and long-term growth. It's a shift from dwelling on past values to envisioning a brighter future.


In your real estate development project, remember that accounting is a tool to record the past, while strategic goals are your compass to navigate the future. When in doubt, choose the path that leads to innovation, value creation, and sustainable profitability.

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