Diani Realty Business Strategies - Case Study Example

Executive Summary This paper presents a business plan for Diani Realty, a limited liability web- based real estate agency based in Dammam city in Saudi Arabia. The company’s principal service comprises of selling of residential real estate properties in Saudi Arabia. The business is geared to meet the increasing demand for housing in Saudi Arabia by capitalizing on investor friendly government legislation and taxation policy. The main driver of competitive advantage for Diani Realty will be the effective use of ICT to boost business productivity. This plan outlines the goals of the business, its marketing and pricing strategy, its location, proposed management, financial estimates, critical risks, harvest strategy and the milestone schedule for Diani Realty Business Plan: Diani Realty Section II: Business Description Diani Realty is a web- based real estate agency based in Dammam city in Saudi Arabia. Diani Realty provides 24/ 7 web-based real-estate services for both buyers and sellers of property. The company’s principal service comprises of selling of residential real estate in various targeted market areas. Diani Realty will provide its clients with a global network of buyers and sellers using online multi-listing services. In addition, the business will provide potential buyers and sellers of property access to services such as mortgage consulting, consultation on title transfer and general community information. Customers will also be able to obtain comparative market analyses for potential buyers & sellers at an affordable fee. Diani Realty will also provide a Home search database which enables prospective sellers to list their properties in advance and buyers to search and find properties that suit their needs. In addition, Diani Realty will provide advertising services on its website for properties on sale. Industry Background The real estate market in Saudi Arabia experienced some instability due to the global financial crisis in 2009. However, the market has recovered significantly since 2010 and experts have projected a boom in the industry due to increasing population growth that is expected to increase the demand for housing. Government stimulus is also bound to generate growth in this market (Oxford Business Group 2007: 2010). While Saudi Arabia has a great deal of resources and space, it faces a housing shortage (Washington Post 2011). Government estimates indicate that annually, over 500,000 people require new housing. Therefore, there is need for housing and development in Saudi Arabia in order to meet the needs of this market. High oil prices are also expected to increase income levels among the population in Saudi Arabia. The Economic expansion of developing centres such as Jubail, Yanbu, Ha’il and Rabigh in Saudi Arabia has also increased the need for housing (Washington Post 2011). Diani Realty geared towards capitalizing on the potential of the Saudi Arabian market to generate high profits. Corporate Fit In order for Diani Realty to effectively capitalize on the real estate market in Saudi Arabia, it will be launched as a web –based real estate company. This will enable it not only target local customers but also customers in the international market. Due to rapid technological change, businesses have to adapt in order to maintain their competitive edge in the market. The development of electronic business or “e-business”, the application of information and communication technologies (ICT) to support business operations, is one of the drivers of competitive advantage in the modern marketplace (Jackson et al 2003, Kidd and Stanford-Smith 2000). E-business enables the use of ICT to carry out external activities beyond the business environment. It facilitates the buying, selling, exchanging and transfer of money, assets, products and services. Through e-business models, businesses can operate in foreign market and realize above average profitability and growth (Whyte 2001, Kidd & Stanford-Smith, 2000). Goals of the Business The vision of Diani Realty is to provide comprehensive, efficient and first class real estate services for both the local and the international market. The key objectives of the company include; Developing an ethical and solid corporate identity in the local and international real estate market. Assisting homeowners selling their homes or properties and homebuyers purchasing properties by providing professional, personal and customized services that ensure that   the best interests and needs of customer are always put first. Recruiting professional, success-oriented, hardworking and self-motivated employees. Becoming a profitable and efficient real estate company that capitalizes on real estate investment opportunities available in both the local and international market. Develop and maintain good working relationships with clients, local and international real estate listing services and other service organizations in the real estate market. Uniqueness of Product and Service Saudi Arabia has gradually become a business destination that attracts foreign investors due to its business friendly regulations and tax laws. Presently, there are thousands of real estate businesses in the local market. Most of these businesses were established a long time ago providing them with a competitive edge in the market. However, they have failed to efficiently utilize ICT to extend their reach beyond the local and into the foreign market. As a result, there is a gap that exists in the market- the use of ICT to attract foreign investments in real estate. Diani Realty will be launched so as to fill this gap by providing online real estate services (Oxford Business Group 2010; Jackson, Harris & Eckersley, 2003). Section III: Marketing Research and Analysis Target Market Diani Realty will target clients both in the local and international markets. In the local market, the company hopes to attract small home buyers and sellers, medium property investors as well as big property investors. Internationally, targets will be property investors from the Middle East countries, European countries and the United States as well many other countries around the world via the internet. Market Size and Trends Saudi Arabia currently has the strongest real estate market in the Middle East which is projected to yield at least 10% gains to investors over the next 12 months (Nuwire 2012). Gains for investors are driven by high demand for affordable housing, rental properties and office space which currently outstrips available supply creating incentives for both the government and private sector investors to invest over SR 250 billion in construction as part of an effort to meet demand. As of 2011, more than 500,000 people required new homes, the equivalent of 100,000 units annually (Washington Post 2011). Subsequently, the government has put in place a raft of business friendly regulations and tax laws to attract both local and foreign investors into the real estate market. Competition Diani Realty will face competition from several local real estate companies. These include; Aqarcity.com, 3qarsa.net and Jenan Real Estate Company (Businessweek 2012). Aqarcity, established in 2008, is an online based real estate marketing agency that specializes in marketing real estate properties on sale. 3qarsa.net, established 11 years ago, is also an online based real estate marketing agency that specializes in marketing real estate properties on sale. It is considered as one of the largest real estate marketing forums in Saudi Arabia that offers a platform to both buyers and sellers of real estate properties. Both companies have a strong market presence in Saudi Arabia’s real estate market and are expected to provide the main competition for Diani Realty. Another competitor for Diani Realty is Jenan Real estate, a Dammam based company which specializes in the construction and development as well as marketing of real estate in Saudi Arabia. It is well established and the fact that it deals with the construction and development of real estate in Saudi Arabia provides an added advantage when it comes to attracting clients who not only want to buy property but also develop their properties (Businessweek 2012). Section III: Marketing Plan Pricing Strategy The real estate market is often characterized by market fluctuations due to shifts in demand and supply influenced by demographic factors, inflations rates, government regulations, interest rates and the overall performance of the economy. Diani Realty will therefore use a dynamic/flexible pricing strategy made possible by advances in ICT and suitable for internet based companies. This strategy will enable near-automatic adjustment of prices to effectively respond to market fluctuations, meet the needs of its clients in different market segments and enhance its profitability (Longenecker et al, 2005). Advertising and Promotions To maintain a competitive edge in the market, Diani Realty will use the internet as the main platform to promote the company’s business services. Due to the fact that the company’s target market is in both the local and international market, the company will segment its market to identify the suitable advertising and promotional strategies that will appeal to each market segment. The company will advertise its website on travel and tourist websites as well as in websites for related partners such as the banks which provide mortgage services, insurance companies, contractors and other suppliers in the real estate business. Social media will be used to advertise and promote the company’s website both locally and internationally. The company will have accounts in various social media networks such as Facebook, Twitter and MySpace to advertise its services and showcase a wide range and diversified portfolio of services ranging from buying, selling of real estate, mortgage consultancy, Title transfer, Home search database and community information among many other services. The company will also place promotional advertisements on airline inflight magazines to achieve the desired penetration in the international market by drawing the attention of international travelers to and from Saudi Arabia. In the local market, Diani Realty will employ traditional advertising and promotional avenues such as newspapers, magazines, billboards and posters to market its services. Section IV: Location Diani Realty will concentrates on the sale, listing and buying of properties located in the Kingdom of Saudi Arabia. Its offices will be based on King Fahed Street, Dammam City. This location is particularly convenient due to close proximity with a large number of banks, insurance companies and the availability of reliable high speed internet which is crucial to the company’s success. The focus on properties based in Saudi Arabia is mainly due to the rising demand for property development in Saudi Arabia. Advantages Diani Realty will concentrate on the sale, listing and buying of properties in this market mainly due to its business friendly regulations and tax laws. Government support and subsidies in Saudi Arabia have also made the real estate market more attractive to property investors. Saudi Arabia has no tax imposition on property unlike many other countries. Instead, property owners pay 2.5 % of their income as “Zakkat” (Latham & Watkins 2010; O’Kane 2010). Section V: Management Some of the key people who will take up the role of leadership and management in the company include; Faisal Alfadi: Principal investor and stakeholder of the company. He has profound experience in real estate and development and will act as the company’s CEO and ultimate decision maker and overseer of the company. Omar Al Kadi: He has a good management background and years of experience in real estate management. He will take up the position of the executive manager. His key roles will include; overseeing the company’s business operations, reporting and giving advice to the CEO. Abdul Saleh: Will act as the company’s assistant manager. He is a professional in real estate management and has good networking skills. Ibrahim Mohamed: Will be in charge of the finance department. His key roles will include keeping finance records, monitoring the company’s financial statements and processing the company’s financial transactions. Section VI: Finances General Assumptions Year 1 Year 2 Year 3 Tax Rates 15% 15% 15% Zakkat 2.5% 2.5% 2.5% Diani Realty: Start-up expenses Total Available Capital : $150, 000 Basic infrastructure $ 25, 000 ICT applications $10, 000 Personnel $ 90, 000 Advertising and Promotion $ 7000 Recurring operation costs $ 10 000 Miscellaneous $ 3000 Total Expenditure $ 145,000 Projected profits and Loss Year 1 Year 2 Year 3 Year 4 Year 5 Operating expenses Basic infrastructure ICT applications Personnel Advertising Recurring costs Miscellaneous Total expenses Sales/ Revenue Property sales Consultancy services Marketing Total Revenue Pre-Tax profits Taxes (15%) Zakkat (2.5%) $25, 000 $10, 000 $ 90, 000 $ 7000 $ 10000 $ 3000 $145,000 $1,500,000 $150,000 $50, 000 $1,700,000 $1,565,000 $234,750 $39,125 $ 2000 $ 1500 $ 150 000 $ 8000 $ 7000 $ 2000 $170 500 $2,600,000 $250,000 $100,000 $2,950,000 $2,779,500 $416,925 $69487.5 $ 2000 $5000 $ 180,000 $ 10000 $7000 $2000 $ 206,000 $3,500,000 $ 500,000 $150,000 $4,150,000 $3,944,000 591,600 98,600 $ 5000 $ 8000 $ 300,000 $20, 000 $10000 $5000 $ 348,000 $4,000,000 $500,000 $700,000 $5,200,000 $4,852,000 $727,800 $121,300 $ 5000 $6000 $ 500,000 $ 30,000 $15000 $7000 $ 563 000 $4,000,500 $650,000 $800,000 $5,450,500 $4,847,000 $727,050 $121,175 Net profit $1,191,125 $2,293,087.5 $3,253,800 4,002,900 $3,998,775 Projected Cash Flow Break Even Analysis Sales/Revenue Fixed Cost Variable Cost Total Cost Profit $ 50,000 125,000 7,000 132,000 -82,000 $ 100,000 125,000 10,000 135,000 -35,000 $ 150,000 125,000 13,000 138,000 12,000 $ 200,000 125,000 16,000 141,000 59,000 $ 250,000 125,000 20,000 145,000 105,000 . Section VII: SWOT Analysis Strength The use of highly advanced ICT applications will compel the company to deliver fast, efficient and effective real estate services to a wide global audience. Diani diversified portfolio of services such as buying, selling of real estate, title transfer, mortgage consultancy and Home search database among many other services will enable the company to fully capitalise on its target market. The provision of a 24hours customer care services through ICT platforms such as social media applications, Skype and other video chatting platforms will enable the company to provide services to customers regardless of time and location this will in turn help to boost the company’s brand equity. Weaknesses Lack of adequate financial resources to venture into property development Opportunities Expansion into the international markets such as Middle East countries, European countries and the United States as well many other countries around the world via the internet. Threats Competition from well established real estate companies and web-based real estate companies such as; Aqarcity.com, 3qarsa.net and Jenan Real Estate Company Section VIII: Harvest Strategy Diani Realty will be a limited liability company comprising of four partners who have entered into a written agreement. The written agreement will entail provisions for distribution of profits and losses and assignability of interests. Diani’s current business strategy, stretching for five years will not require any external capital since prior to the formation of the company the partners had raised sufficient capital. Subsequent to the investments expenditure the partners also retained sufficient funds to cushion the business against possible risks and unexpected expenditure. Should either of the partners wish to sell their equity for the business, the partners will refer back to the provisions of the agreement which enables partners to select their successors and gradually minimize their shareholding. Section IX: Milestone schedule January 2013: Formation and registration of Diani Realty as a limited liability company February 2013: Application for business licenses for real estate agent in Saudi Arabia April 2013: Finalization of website design for Diani Realty and registration May 2013: Acquisition of office space for Diani Realty July 2013: Completing arrangements with financial partners, banks and insurance companies August 2013: Advertising and recruitment of staff at company offices in Dammam October 2013: Placement of advertisement and promotions in local and international media October 2013: Official launch of Diani Realty and initial listing of properties for sale November 2013: First sales of properties in Saudi Arabia Bibliography Businessweek (2012). Company Overview of Jenan Real Estate Company, Retrieved on March 2, 2012 from Ergo (2010). Mortgage reform in Saudi Arabia: Game Changer for Housing Market? 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