UAEs rich likely to stick with home realty

Wednesday, Apr 06, 2016

Dubai: High networth investors in the UAE are less likely than their Gulf counterparts to commit funds on property deals elsewhere in the Middle East, according to findings released by Cluttons, the consultancy. Instead, they are far more likely to stick with investing locally, with a majority of those polled saying these would be in the $1 million to $1.5 million (Dh3.67 million to Dh5.5 million) range.

In the second part of Cluttons “Middle East Private Capital Survey”, 63 per cent of those polled plan to invest in their preferred real estate locations during the year, with 27 per cent identifying Dubai as among their Top Three destinations within the Gulf, while 21 per cent chose Abu Dhabi and 8 per cent opted for Sharjah.

If these deals do pan out, it would be good tidings for the UAE property market after experiencing a sharp correction in values last year. But it does not necessarily mean developers should be rushing out with high-end off-plan launches to tap these investments.

“Seventy-five per cent of UAE based high networth investors were talking about funds of $1 million to $1.5 million — that’s not going to get them a villa in Emirates Hills or a Palm,” said Faisal Durrani, Head of Research at Cluttons’ regional office. “Instead, a group of such investors would typically pool their funds through special purpose vehicles on smaller residential buildings in the older parts of the city. This is because the yields on these are more attractive for these sophisticated investors.

“These would typically be in the Dh15 million to Dh25 million range. Properties on the periphery of the city could also prove attractive because of their higher yields.”

Oil price

On whether it comes as a surprise that UAE’s wealthy are looking inward, Durrani said: “The UAE Government has been forward-thinking in how they have addressed the oil price crisis, while other Gulf states seem to be taking a longer time. In the UAE, spending levels have been sustained — this is despite government revenues having dropped on account of oil prices. There are lower government deposits in the banking sector.

“But there is still a push ahead with infrastructure projects and there have been new announcements by Dubai Municipality.

“These are reasons why there is a less sense of urgency among UAE’s high networth to invest outside. There’s a lot happening in country. But that’s not the case elsewhere in the Gulf and why investors there are more likely to step outside to mitigate risks.”

Last year, Gulf nationals carried out Dh44 billion worth of real estate transactions in Dubai, based on official data.

In the Cluttons’ survey, The Springs and Bur Dubai were the “most mentioned areas” for residential investments in Dubai, with Deira, Jumeirah Islands and Jumeirah Village following. For office properties, Deira and Downtown Dubai were most popular, with Bur Dubai and Business Bay coming in joint second.

Abu Dhabi

When it comes to Abu Dhabi, “Lower prices compared to Dubai is one of the main drivers for investment”. “The price points for certain types of property are lower than comparable options in Dubai, which gives those who have been priced out of the Dubai market a chance to invest in similar stock,” said Durrani. “On Saadiyat Island for instance, where average values for sea view villas currently sit at circa $610 per square foot, the best comparable Dubai equivalent would be villas on the Palm Jumeirah, which are considerably more expensive at $780 psf.”

Sharjah’s ranking can be “attributed in part to the emergence of the emirate’s first masterplanned communities which have been very well received by the local and international investment community”. “The rise in demand for gated community living has ensured schemes like Al Zahia and Tilal City continue to register strong interest,” said Steven Morgan, Senior Partner at Cluttons.

Factbox: What investors need to keep watching out for

* Cluttons’ forecasts are for residential property values in Dubai to be on the softer side through this year. This is despite transaction levels coming in better than was anticipated during the first three months of the year. But the Cluttons’ report states: “For now, we still expect residential values to continue dipping across the city, with average falls in the region of 5 per cent likely during 2016 as affordability constraints and a general liquidity crunch hinder deal activity. There will of course be some submarkets where residential values outperform, particularly areas perceived to be more affordable, or those where there is a genuine demand-supply imbalance.”

* “Historic districts along Dubai Creek, such as Bur Dubai, Deira and Garhoud, remain hubs for local businesses and are unsurprisingly among the top office market locations being targeted by our HNWI [high networth investor] sample this year,” according to Cluttons. “Occupiers however, remain very cost conscious. This is fuelling a growing trickle of budget-driven occupiers targeting areas they perceive to offer better value for money.”

By Manoj Nair Associate Editor

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