Al Mal Capital's upcoming real estate fund IPO should keep investors satisfied
But it is baffling as to why Dubai hasn't seen more real estate investment trusts
With the UAE Securities & Commodities Authority (SCA) having granted approval, Al Mal Capital REIT will become the first real estate fund to be listed on DFM.
Yes, there are already two REITs - Emirates REIT launched in 2010 and ENBD REIT in 2017 - but both are listed on Nasdaq Dubai. With Dubai awalys rated highly for its prime real estate, it is certainly surprising to see there aren't more REITs. In fact, it is startling - as the size of the US REIT market before this year’s crash was estimated at $1.32 trillion.
Hopefully, the REIT market in Dubai will also develop since it will help the sector raise much needed cash and also reduce the balance-sheet risk of banks.
Having said that, investors will be wondering on whether this is the right time to invest in the real estate. The sector is plagued by oversupply and lackluster demand due to a decline in the expatriate population. And landlords have been forced to restructure their payment schedules to adjust to the weak economic scenario.
So will a REIT be able to honor their dividend commitments? Ironic, it might seem, but the best time to buy is when everyone is selling. That is how the best investors have always made money - and it remains the basis of value investing.
Got the millionaires and more
It is worth noting that UAE is now a "first world nation" that has achieved significant prosperity. According to World Bank data, the GDP has grown from $104 billion in 2000 to $421 billion by the end of 2019.
In other words, UAE has grown its economy by almost four times in this span. This is unprecedented. The population has grown from 3.13 million to 9.77 million. Reports indicate that there are 79,000 high networth individuals, 3,400 multi-millionaires, and 12 billionaires.
Numbers don’t lie and this means that UAE is successful in attracting the best and most successful. The business scenario UAE will improve with the availability of a vaccine and that should lead to higher real estate demand in the long term.
Feeding the yield-starved
Al Mal Capital, a subsidiary of Dubai Investments, has strong management capabilities. Al Mal REIT is expected to have a net dividend yield above 7 per cent and has a target offer size of Dh500 million. According to the management, the real estate portfolio is diversified and backed by secure long-term leases.
Dividend distribution will be at a minimum 80 per cent of their net income as per regulation. The proceeds of the REIT will be used to invest in sectors like healthcare, education and industrials.
For yield-starved income investors, Al Mal REIT is a decent choice to park a part of their investments. Retail investors who cannot be afford big-ticket real estate deals can partake in this offer as the minimum investment size is only Dh10,000.
Of course, the basic premise of an investment is that UAE will be back to business. And that is indeed a good bet to make...
- Vijay Valecha is Chief Investment Officer at Century Financial.