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How Banks Managing their own Properties are hurting their ROI?

If you are a bank or financial corporation, it makes less sense for you to manage your properties as it is a very time-consuming task and costly affair too. Furthermore, if the leadership of the bank is not an expert in managing properties, it can have a serious impact on the bank’s Net Operating Income (NOI). NOI is a calculation done to analyze the profitability of income-generating real estate investments. It equals all revenue from the property, minus all reasonably necessary operating expenses.

The secret behind the success of several top international banks is that they hire experienced property management firms to manage their properties and allocate their entire workforce with the task of maximizing profits and expanding the asset portfolio. This way these banks achieve optimum utilization of resources and boost their portfolio.

Let’s find out how hiring a property management firm can act as a catholicon for the UAE Banking sector –

1. Managing the Properties Occupied by Banks Due to Loan Defaults

Banks & financial institutions keep assets or homes as collateral security while issuing a home loan. When a borrower is unable to pay the loan, banks take over the property as a measure for recovery or reconstruction to reduce their non-performing assets (NPAs). However, considering banks neither have the expertise nor experience resources to manage these properties, they end up losing their value as time passes. And it’s no surprise when banks sell it to the third party to recover the loan amount they don’t get the value equal to the loan amount. This results in massive losses for the banks.

It is of utmost importance for the banks to hire a property management firm to manage these properties to ensure they stay in better shape and their condition doesn’t deteriorate. Property management firms perform timely maintenance, repairs, upgrades, renovation and leverage their unconventional expertise and technologies like (PropTech) to ensure property always looks news and its value doesn’t decline.

2. Overcoming the Knowledge Gap

Along with time & resources, managing a property also requires extensive knowledge to ensure not a single aspect is left out. The process of managing a property is almost a journey that involves a vast range of activities. If a bank manages the property itself, it will be a very costly affair for them. Furthermore, even a tiny error committed by them due to lack of expertise can take a toll on their NOI as well as their valuable brand image, and customer confidence. 

3. Countering the Legal Risks 

If a bank fails to manage the property in the desired manner, might be due to lack of expertise or time constraints, it can invite several legal challenges for them. Hiring the right property management firm can play a great role in ensuring that high levels of compliance are met and property remains up-to-date through timely repairs. Property management firms also provide a dedicated technical inspector to analyze and fix any potential defects well in advance.

4. Economies of Scale

Another great advantage of recruiting a property management firm is they have access to a vast number of bonded, insured, and licensed contractors who can offer substantial discounts for consistent workloads. This will not only save money for the banks on repairs & damages but will also result in an increase in the value of the property.

5.  Effective Management of Finances

Property management ensures that all the payments of the banks related to the building such as – rent, service charge, utility bill, etc. are made on time which not only assists banks in effectively managing their finances. Property management firms also ensure that banks follow all the terms stated in the lease agreement pertaining to payment guidelines and late fees or any other important thing to avoid financial penalties. In this way, property management firms allow banks to boost their NOI.

6.  Wide Reach with High Returns

It is no secret when the banks manage their real estate investment; they restrict themselves just to investing in the nearby locations. This way banks miss out on numerous profitable opportunities which can benefit them and also elevate their NOI figures.  Hiring a property management firm can work wonders for the banks in easily managing their real estate investments. Furthermore, the high reach of property management firms also facilitates banks in setting up their branches in any part of Dubai or the UAE. More number of branches prominently at profitable locations has a favorable impact on the net operating income of the bank as well as in boosting its cash flows. It is always difficult for banks to manage their properties from long distances, creating an urge to hire a property management firm. For example – if a bank has one office in the Dubai South area and another branch in Hatta and the third one is Deira, it will be ‘nigh on impossible for the bank to manage all its branches. 

Thus, it makes sense to hire a property management firm as they have a wider reach and workforce to manage each property based in any part of the emirates. It will cost banks a fortune if they try to manage all the properties themselves in terms of operational cost, time, and manpower. It can also result in high customer turnover due to poor management of the property as well as the services.

7. Making Your Investments More Profitable

A right and an experienced property management firm can take care of most of the aspects currently managed by the banks which will allow them to focus more on making more profitable investments and growing their investment portfolio. This has a profound impact on the bank’s NOI.

Property management also manages all the responsibilities related to the bank’s premises in a more professional & timely manner to enhance its condition as well as boost the profitability of the bank’s income generated through real estate investments. 

Summary

Property management firms can play a vital role in boosting the net operating income or NOI of a bank. They assist the banks in overcoming the knowledge gap by leveraging their wealth of experience in making the properties real ‘cash cows’ for all the associated stakeholders. Furthermore, property management firms also enable & empower banks in countering the complex legal & final challenges which can result in hefty lawsuits and loss of revenues. Property management firms also ensure that all the business payments or bills are paid on time which provides a transparent and real picture to the banks on their financial position. They also make sure that banks always abide by the terms stated in the lease agreement pertaining to payment guidelines and avoid any unforeseen situation which can adversely impact the NOI of the building.

The top reason for the banks to choose a property management firm to improve their NOI is their wider reach as they have offices or property managers in every part of Dubai. Thus, they can manage a large number of branches of the banks in a more professional and cost-friendly manner which will have a profound impact on its net operating income and make their investment more valuable. As they say,  ‘ a penny saved is a penny earned’  – a property management firm will not only allow banks in saving the money but will open a reservoir of sources for them to expand their investment portfolio, maximize the revenues, and enhance the NOI.

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