x Abu Dhabi, UAEFriday 21 July 2017

Investors venture back into Gulf region

Institutional investors see Abu Dhabi and other markets in the Gulf as nearing the bottom of the downturn and ripe for investment.

The view inside the Sun Tower, being developed by Sorouh, overlooking Reem Island.
The view inside the Sun Tower, being developed by Sorouh, overlooking Reem Island.

Institutional investors are streaming through the gilded halls of Emirates Palace and the offices of some of the largest property developers as they study joint-venture opportunities in the region. Given the present limits on credit from financial institutions and with off-plan sales of homes down sharply, companies such as Aldar Properties and Sorouh Real Estate are seeking new ways to fund their multibillion-dirham projects. Meanwhile, institutional investors see Abu Dhabi and other markets in the Gulf as nearing the bottom of the downturn and ripe for investment.

Philip Blumberg, the founder and chairman of Blumberg Capital Partners, said: "Abu Dhabi is overbuilt and there are a lot of buildings coming on line, but we see opportunities to develop a building here that caters to a niche market." Mr Blumberg was passing through Abu Dhabi on a regional tour to promote a new US$1 billion (Dh3.67bn) property fund to take advantage of the bottom of the cycle in the US.

In addition to investing in the US, the fund could develop or invest in property in Brazil, Oman and Abu Dhabi, he said. Mr Blumberg said he would want to form a partnership with a local developer and ensure the Government had a stake in the project as insurance in case problems arose. In the past two years, there has been little investment in the region's property sector by outside funds. Many large investors have retreated from riskier markets during the global financial crisis. These funds also tend to avoid off-plan developments, markets with uncertain legal environments and buildings that cannot be wholly owned.

Andrew Charlesworth, the head of capital markets at the regional office of the property consultancy Jones Lang LaSalle, said: "In reality, only the best-located developments that have a demonstrable demand profile, or those developers with a proven track record and who have put together a well-thought-out and creative investment package that takes into account the risk aversion of investors, are likely to succeed in attracting this type of capital."

Some of the smaller developers that are trying to bring in these investors using "outdated valuations" are likely to "struggle to compete for such capital in the near term", Mr Charlesworth said. Sorouh, the second-largest developer in the capital, has been talking with outside companies to get them involved in some of its large projects in Abu Dhabi. Abubaker Seddiq al Khouri, the managing director of Sorouh, said: "We are talking to international developers and investors, and this will help de-risk the proposed business partnerships with Sorouh. Sorouh can offer investors a platform whereby they have access to development opportunities on marked-to-market terms, to better position their developments locally and leverage relationships with contractors and banks."

Mr al Khouri said investors would have more secure "access to a nascent market, where land is closely held and the laws are still being formed". However, a major deterrent to outside investors is the region's underdeveloped legal framework. Many insurance companies and pension funds, which make up a large proportion of the buyers in London and New York, can invest only if they are able to legally own the property and enforce their rights in a way that is comparable to the legal provisions in their own jurisdictions.

Jurgen Herre, the head of the regional office for the US developer and investment company Hines, said: "Here you have uncertainties. They have done a wonderful job improving the legal framework [for] investors, but it is still not at the level to allow the majority of investors to come into the market." So far, the only investors willing to take the risk are private equity groups and hedge funds, but "that will change over time", Mr Herre said.