Dubai: Dubai’s property market is finally ready to ditch those old concepts of ownership.
Investors and developers are now veering towards allowing multiple investors to take up part-ownership in a property rather than wait around for a single investors to buy the whole unit. On Monday, Lootah Real Estate Development confirmed it will be introducing ‘crowdfunding’ at its Jumeirah Village Circle (JVC) project, where an owner can pick up part stake in a unit for as low as Dh5,000.
Co-ownership of individual properties is what this essentially means.
Another entity will soon launch its version of shared investments. “More than ever investors are looking for investments that are low risk,” said Rami Tabbara, co-founder of DIFC-based Stake, which is to launch operations shortly and will be offering "units" from Dh2,000. “By sharing ownership risk is reduced and investors can finally diversify their portfolio into various units [and] allowing them to hedge against any market downturn.”
Stake’s intention is only to acquire ready properties and then parcel them out to investors. Tabbara said the company’s strategy will not budge from that.
“While there is certainly appetite for offplan properties with reputable developers, there are many who remain cautious due to bad experiences investing in [under] development projects,” said Tabbara. “These experiences have varied from unsuitable investments with unattractive returns to assets being riddled with problems such as delayed handovers, poor build quality and unfinished amenities.
“In extreme cases, offplan projects can even be called off.”
Are investors ready?
Crowdfunding concepts had been aired as possible options to bring in more investors for some years now. The thinking is quite straight-forward – invest smaller sums than in the hundreds of thousands to get a property in Dubai. And from those investments, generate rental yields.
But somehow, that interest never materialised into anything concrete. But a new legion of proptech companies – Stake is one such – are hoping that the present could just be the moment the market had been waiting for.
At one end, we have young people who are blocked from getting on the housing ladder due to large capital requirements, and REITS either offer low returns or are open to accredited investors only
This time round, developers too are keen to pursue their chances. Ellington Properties recently announced a deal with Smart Crowd, a real estate investment platform, whereby investors can “co-own” residential units and at investments starting from Dh5,000. (The first unit sale happened at the developer’s Eaton Place project.)
“Since the crowdfunding concept is quite new in UAE real estate, it is taking a bit of time to take off,” said Siddiq Farid, CEO of Smart Crowd. “The COVID-19 pandemic did slow things down, but we have seen increased demand both from investors looking to get into the market and developers looking to transform themselves digitally.
“Our platform enables developers to “fractionalize” their real estate and distribute it digitally. They no longer need investors or buyers to be present. They can invest in their properties through our platform from the convenience of their device from literally anywhere.
“We have had investors from as far as New Zealand. We are opening up new markets for developers and at the same making real estate investing easy for investors.”
As with Stake, Smart Crowd’s interest is in ready units,that are tenanted or can be done easily. ”We want to offer our investors the ability to generate healthy yields while waiting for the market to turn so they can exit with profits,” said Farid. “Investors can collectively sell the property to maximize their investment or can sell their shares to others on the platform.”
Testing the laws
Dubai’s real estate authorities have in the recent past said it will issue “partial title deeds”, which will give assurance to investors to engage in such schemes. The concept was tested out at a pilot project. More details are awaited.
In the Ellington-Smart Crowd arrangement, the sale and purchase agreements for a residential unit are issued in the name of the SPV (special purpose vehicle) that is DIFC-registered. People who fund it are also listed as shareholders in the fund.
Need for change
According to Manar Mahmassani, who is a co-founder at Stake, the property market’s ripe for some sort of change. “What is clear is that the current model of real estate investment is no longer fit-for-purpose,” he said. “It’s either exclusionary for the young, or it falls short in delivering attractive returns for the more experienced investor. Our solution will provide inclusive investment options to suit both.
“Our choice of assets focuses on prime locations where rental demand is high and long-term fundamentals will be a strong driver of capital appreciation from today’s decade-low price point. We believe that investing in Dubai’s real estate can be very profitable - if done in the right way and with market conditions under pressure.”
As long as investors think the same, co-owning could emerge as the next big thing in Dubai’s real estate. At Dh5,000 or thereabouts, it definitely is turning accessible…
We are starting to work with developers now, which demonstrates that the Dubai property market is starting to recognize the power of real estate crowdfunding