Foreign direct investment in the UAE is growing, but the hotels sector is lagging.
“FDI in the hospitality sector is slower than the real estate sector because there is still a lack of transparency on transactions,” said Joe Sita, the chief executive of IFA Hotel Investments. Kuwait’s IFA has projects such as the Fairmont Palm, Mövenpick Laguna in Jumeirah Lakes Towers and Kingdom of Sheba complex on the Palm.
“As long as we continue to face this issue, it will remain difficult for foreign and institutional investors to build a complete enough picture of the market to dive in, despite the fact that they know Dubai is certainly worth investing in.”
In the UAE, foreign investment in the hotel sector is concentrated in Dubai, as most hotels in Abu Dhabi are owned by government entities or the very wealthy. That said, most of the transactions are done off-market and there is a lack of transparency around such deals.
Those who do wade in tend to be from countries where transparency is not a given.
“Investors from countries experienced with the risk profile associated with the UAE will dominate, such as the Gulf and subcontinent, however we are seeing an interest from private equity funds with European and Central European interests as well,” said John Podaras, a partner at Hotel Development Resources.
Among foreign-owned groups that have ventured into the hotels sector here are Azerbaijan’s Mirk with the Sofitel in Palm Jumeirah; Ukraine’s Emerald Palace with the Emerald Palace Kempinski Hotel and Residences complex on the Palm Crescent; Kuwait’s Acico with the Radisson Royal Hotel Dubai, and the Radisson Blu Resort in Fujairah Dibba; and from Saudi Arabia, Rani International with The Oberoi in Business Bay and Kingdom Group with the Mövenpick Bur Dubai.
And a private equity fund operated by Bank Muscat bought the Mövenpick Hotel at Dubai’s Jumeirah Beach Residence in May.
“There is greater foreign ownership of the midmarket and budget hotels, especially from the subcontinent such as India’s Landmark Group,” Mr Podaras said. “A number of the hotels and serviced apartments in Al Barsha are foreign-owned as well as many of the as yet not completed projects in Business Bay.”
Landmark Group, which operates three hotels in Dubai and Sharjah under the Citymax brand, plans to open 20 hotels across the Arabian Gulf. Landmark Group’s unit Landmark Hospitality, which owns the Citymax brand, is based in Dubai and owned by the Indian businessman Micky Jagtiani.
“Most of the FDI is in new properties by investors from the Gulf mainly but also India, Pakistan and central Europe,” said Chiheb Ben Mahmoud, the property consultancy JLL’s executive vice president and head of hotels and hospitality for the Middle East and Africa.
There is hope that Expo 2020, which is to unlock an estimated US$8 billion in government spending on infrastructure, could lead to a pickup in hotel transactions.
“We expect some transactions this year,” Mr Ben Mahmoud said
The number of buyers and sellers in the market is small, and that also restricts the market.
“It is a destination that is relatively new, and hotel investors are in limited numbers,” Mr Ben Mahmoud said. “To have better transparency, you need a high number of buyers and sellers, but because the number of players at the long term, professional level is limited, this creates a lot of concern.”
Overall, foreign direct investment in the UAE is expected to touch $14.4bn this year from $12bn last year, Abdullah Al Saleh, undersecretary at the Ministry of Economy, foreign trade sector, said in January.
The figure was $4bn in 2009.
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