investment 18
We are just starting to see some renewed interest by institutional
investors in emerging markets due to their higher growth potential
As the hardest hit market in the region, does Dubai still offer good Is Abu Dhabi’s supply-demand inequality an attraction for
long-term opportunities? institutional investors looking long-term?
EM: We get asked this question all the time. First of all, Dubai as a EM: Yes, but the Abu Dhabi market doesn’t have that many players
city state has managed to create a world-class infrastructure and and isn’t that transparent. It is also not very liquid so the more
that’s not going to disappear. It will continue to act as a magnet people and players that come into the market, the more this will
for people who want to do business in this region, and there will increase its attractiveness, especially as it has the right investment
be more and more people looking to do that, so Dubai will retain fundamentals – the demand-supply imbalance.
its position and won’t be challenged by anyone else in the GCC
anytime soon. Qatar and Abu Dhabi are also up there and making DC: The current Abu Dhabi supply-demand gap is expected to
good strides, but Dubai is still a few steps ahead at the macro gradually narrow, as projects under construction are released in
level, and will continue to attract investor interest. However, there the market, thus rationalising the market in terms of competition.
is a huge oversupply in Dubai and to get the cycle working again, I According to analysts’ estimates this will happen by 2013, so the
don’t think that the price bottom in Dubai is there yet, it needs to emirate presents favourable supply-demand dynamics supported
come down further until there are willing buyers. This could mean by the country’s strategic vision, and offers attractive yields to the
that some projects will have to reach below cost before they start medium and long-term investor. In its Plan 2030, the emirate lays
clearing the market, but it has to come. the foundations for a structured and well-articulated framework
for long-term growth. Moreover, aggressive targets have been
DC: Not as yet, the market is in the process of rationalising and set in terms of FDI inflows. Over the last five years, the city
deleveraging. Bad news from the market has not recessed so far. attracted US$81.7 billion, 50 percent of which was concentrated
We believe this is a healthy process and constitutes a strong and in the real estate sector, and capital influx is expected to increase
clear indication that it won’t take too long before we start seeing the tremendously over the coming years. Finally, what makes the
beginning of a recovery. My guess is that by mid-2010, Dubai should market attractive is the quality of construction and sustainability
be able to start its recovery driven by the strong fundamentals of of new developments, if executed according to the standards set
the UAE economy, provided however that the financial sector gets in in the designs.
shape to finance new demand.
What kind of yield expectations are now being considered
Has investor confidence in the wider Middle East region been acceptable across the different asset classes?
impacted by what has happened in Dubai? EM: In the absence of debt in today’s market you should be
DC: Obviously, the worldwide crash in real estate markets has looking at something in the order of 25 percent, in its internal rate
meant that all market players have begun to behave more of return format, but, with debt not available, you should get a
conservatively due to the ripple effect that affected all markets little bit more. Even if debt was available today, the ratio between
regardless of fundamentals; and this is not confined to Dubai. The debt and equity is heavily weighted on the equity side, so I think
contraction happened in different ways in different countries, and anywhere between 15 to 25 percent is reasonable to expect in
recovery will likely be faster in markets with stronger fundamentals. today’s distressed market situation.
Dubai suffered the most in the region as it is the most liberal market
with the easiest access to finance. Investor confidence will be back DC: When evaluating investments decisions in real estate, five main
as soon as the markets rationalise, which will take time. parameters should be considered: Location (prime or secondary);
demand for the specific asset class; availability and cost of financing;
EM: I think that what happened in Dubai has something to do with quality of the building and its sustainability and price. That said,
it and investors definitely want to see more transparency as well as a resulting net rental yield in the range of eight percent would be
firmer regulations than currently exist, and this is coming. But overall, regarded today as an acceptable and realistic return.
there are good things that have come out of the current situation
and I don’t believe that people are shying away from Dubai or Abu How is the region doing in terms of perceived and actual
Dhabi just because of that. Don’t forget that people have been very transparency ratings?
badly hurt in other markets and their own domestic markets, and DC: Surprisingly, we have been doing better according to the latest
are eyeing any investment opportunities with extreme caution, GCC transparency ratings. The recent financial crisis revealed,
especially European and North American investors. however, that transparency rating is flawed.
PREVIEW Cityscape Dubai
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