uae developer profile
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SPREADING RISK
Sorouh’s portfolio is not only diverse in terms of its projects but also in its approach to risk management. The three-pronged strategy focuses on controlling risk and diversifying into the rental income arena with devel- opment of its investment portfolio, a commitment to national housing, and development plans in line with the Abu Dhabi Plan 2030. For Singh it is simply a common
sense approach to portfolio management. “Even without a downturn a realistic devel- oper needs to de-risk a certain portion of the business and how you do that is to not just involve yourself in market-rate real estate – meaning actually selling product – you also get involved in a very focused plan of creating annuity income, which is important because it helps to defray a lot of ongoing operational expenditure. But more interest- ingly today, there are a lot of real estate structures that can be created from recurring income,” he says. “You want to warehouse and incubate good recurring income property which you
could use as part of your exit strategy to recycle capital. A very easy example is a residential building where you lease out all the units and then improve the revenue from the building; then two to five years down the road if you decide that you need to raise capital you can actually sell a property with an interest in yield which has been well managed,” he continues. There are further opportunities, as seen in other markets, but yet to impact this
region, as Singh explains: “A second opportunity is that you could even sell that into a fund; and a third opportunity – which has been robustly practised in the Far East, Australia and the US – is creating REITs. A lot has been talked about REITs but the key underlying feature is consistency and an ability to create value accretion in annu- ity income, so you must be able to produce a constant and safe measure of recurring income. To do that you need longer leases, for example, and if that is to take off in this part of the world then you need to re-think lease structure.
“They can’t be year-to-year anymore because there is a lot of insecurity. They need
to be longer – three to five years for example – and the legislative framework must allow for that. If and when that comes about then you will find you will be able to build property that will cater for single users or corporate headquarters, or even single use residential type tenants; that will give you some security of income.” Singh says that this is the role of today’s market-savvy developer – to look for these longer-term opportunities, and expands further. “The industry here is maturing fast. While they are trying to grapple with a lot of the challenges posed by the downturn it will only be enhanced by increasing transparency and it must start with the developers themselves and then supplemented with a very strong property framework.”
EXACTING VALUE
The development of a strong legislative framework for the property sector also extends to the valuations sector, an area that has been largely unregulated; and Singh would like to see this addressed as part of the move to stabilise the market. “This will become more exacting as we move forward, and before banks lend money
to the broad property sector – developers, contractors and other proponents including consultants – they will now require greater accountability; and that impacts the valua- tion profession,” he says. “I think Dubai has already come up with a set
of guidelines, and is planning to formally launch the Arab Appraisal Foundation in conjunction with the Land Department, which will be an umbrella body representing valuation profes- sionals in the region. “It will take some time. Accountability needs
to be increased, valuers need to be brought to the table and then maybe regulated – which is how it should be – so in the longer term banks will reply a lot more on valuations which is a good step in terms of transparency and in trying to bring back international investment to this part of the world,” he adds.
6 Sky Tower 7 Lulu Island 8 Alghadeer 9 Watani 10 Marina Square
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/apr-may 2010
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