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Investors take a shine to new asset classes in Dubai

Leading developers are now translating interest into full-scale mid-market housing

Gulf News

Two recent parallel announcements highlight the trends that are beginning to emerge in local real estate. The first was made by Rasmala for an investment in warehouses, to capitalise on the higher yields that the market has been offering.

The second was by Emaar announcing the launch of affordable town houses in Dubai South as the first in a series of launches for its signature Dubai South Development. Both divergent trends take cognisance of a common theme; the fact that investors and developers alike need to step out of their comfort zone to take advantage of opportunities in the marketplace.

Investments into the warehouse and logistics space to capitalise on the higher underlying yields are perhaps the first steps towards a multitude of options, by offering diversified portfolios in the REIT (real estate investment trust) space. In response to challenging market conditions in the conventional space, investors will need to get creative to increase yields on their portfolios.

And the strategy to broaden the investment landscape is indicative of the broader market for the Dubai real estate sector, where investor monies from across the globe have poured in since the advent of the freehold in 2002. There have been instances where an experienced local operator has teamed up with institutional investors to tap sectors that were long avoided.

From the industrial space to affordable housing, operators and developers have been to partner up with different buckets of capital previously not seen.

It has largely been through such moves that GRE (government-owned real estate) developers have begun to focus their attention on affordable housing space in recent months. It is a category long ignored domestically despite being the source of considerable cash flow in international markets.

But moves such as the announcement by Emaar promises to usher in an era of residential development to cater to a populace that could not afford the blue-ribbon developments that have attracted international capital.

In point of fact, Emaar’s move mirrors that made by developers in New York and London, where developers have moved southward in terms of price points in response to increasing anxiety of price levels at the top-end. In Dubai, the recent correction in values and rentals have largely been concentrated on the luxury end of the market, indicating that demand remains healthy at the mid-end.

While the private sector has already made moves towards affordable, Emaar’s entry will likely provide a fillip and unleash new capital into this space as investors take comfort in the legitimacy of the strategy. This will, in turn, cause further momentum as other players rush in, creating a virtuous cycle.

These moves have taken place amid a backdrop of increasing concern regarding the economic slowdown triggered by the decline in oil prices. To be sure, there has been a noticeable decline in economic activity, but it is important to highlight that not only have these concerns been largely absorbed into current prices.

Also, the pace of developer launches indicates increasing appetite by investors for products that meet varied price points, indicating market maturity unlike in the previous boom-bust cycle that culminated in 2008. Forecasters often feel incentivised to pump up the probability of worst-case scenarios, thus inflating the probability of disasters, as a way to increase the salience of a warning.

Or because they believe that proving prescient will be something they can boast about, while proving mistaken will be something most people forget. Over time, this has some corrosive effect on trust in the expert community, which has been a factor in dampening investor sentiment.

History attests that this impact is at best transitory. From the gloom and doom scenarios of “Grexit” to the recent hand-wringing on Brexit, pundits have been far off the mark in terms of the impact that these events would have on financial markets and economic growth.

Dubai’s data and valuation indicated a slowdown in the last quarter of 2013, and more than two-and-a-half years later is flashing signals of an upturn (albeit a grade one) that seems to have not percolated down into the analyst community.

As this year’s Cityscape event, it is heartening to note that the emerging trends in domestic real estate sector remains not only resilient but vibrant and diversified in the run up to the World Expo 2020.

— The writer is Managing Director of Global Capital Partners.

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