Real estate sector builds on PPP model

ALKESH SHARMA / Emirates Business

UAE’s construction and real estate sector is poised
for sturdy growth over the next five to ten years, as the
industry is exploring an already favourable Public Private Partnership (PPP) investment structure. However, at a time when many banks are shying away from giving easy loans, PPP model emerges as a boon in the Emirates’ real estate sector.
“Though it’s a new model of investment over the years, PPP has become one of the most popular tools for funding new construction projects around the Emirates. One of the main benefits of this framework is that it minimises the risk of financial loss in case of any economic downturn or any other untoward incident,” Naseer Abdullah, who is working with a seed capital fund, which has made investments in two different green energy projects in Dubai, told Emirates Business.
PPP is evidently a new success mantra for various industries in the UAE. According
to recent reports, new PPP projects worth over AED50 million are expected to see the day’s light in the UAE by January 2018.
“PPP model clearly promotes competition and enhances efficiency in the overall system. Following the financial crisis that struck UAE’s real estate sector in 2008, investors are acting very cautiously when it comes to make huge investment. Even getting easy loans is a difficult task at this moment. Under such circumstances, PPP model of business is very well driving UAE’s real estate sector,” Moen Mohammad, Managing Director of Blossom Infrastructures and who has invested in couple of PPP projects in Dubai, told Emirates Business.
Notably, PPP models also give governments the opportunity to shift large upfront capital spending from the main project towards other areas of utmost importance.
Besides merger and acquisitions are also playing a crucial role in the success of UAE’s real estate industry.
According to the UAE-based Al Masah Capital Limited report titled ‘MENA M&A Industry’, UAE accounted for upto 34 deals in the real estate and construction sector in the Middle East and North Africa (MENA) region during 2010-15, while the total number of deals in the region was 239. However, in terms of volume, the UAE raked in around 21.1 percent ($6,236.3 million) of the region during this period.
“PPP is one of the major things happening in the region’s real estate sector at this moment. It enhances knowledge sharing and ensures the implementation of the best practices in the projects. We have observed that it also helps to curtail project completion delays and cost overruns as these would cut down the revenue margin of the private sector partner,” pointed out Abdullah.

Dubai property prices to rise

Emirates Business

Dubai property price increases are on the horizon says Dubai realtor, who points to “affordable housing” as the key driver pushing up demand. Over the last quarter, one of the UAE’s leading property agents, Allsopp & Allsopp, has recorded substantial sales growth, with 83 per cent of all properties sold for under Dh4 million. Coinciding with increased sales in the sub-Dh4 million segment, the agent has registered more buyers than at any other point in its eight-year history. Last week saw 136 new buyers register and the week before saw 181 new buyers. The same period last year registered between 80 – 90 new buyers.
Allsopp & Allsopp CEO, Lewis Allsopp, said: “Our opinion as a leading real estate agency in Dubai is that on the ground we’re seeing a definite shift in the market.” “Demand from buyers is already putting prices up. Every property we’ve sold in the last two months has had multiple offers on it and ended up selling above the listed price.
“This is the first time in the last two years owners are increasing the asking price and actually receiving it. We’re starting to see bidding wars with multiple buyers putting offers in – and it’s all in the under Dh4 million segment.
“We’re actually registering more buyers than properties so we’re starting to see a shortage of supply, which combined with buyer demand and sellers putting prices up, all points to a shift in the market.” Allsopp says average purchase price trends have changed following implementation of the mortgage cap a couple of years ago. Under the cap, properties above Dh5 million require a higher deposit of 35 per cent.
“Following implementation of the lending caps, the property market has evolved so more buyers are opting to mortgage their properties and with the cap we have found the appetite to buy properties above that price band deteriorate, which has resulted in the higher end of the market suffering in terms of pricing.”
Allsopp & Allsopp’s figures show only 13 per cent of sales over the last quarter were above Dh5 million. “While the figures don’t read well for owners of properties over Dh5 million in terms of buyer activity, should the mortgage cap regulations be eased, with buyers being allowed to put less of a deposit down (currently 65% loan to value), we would see more traction.”
Highlighting the strength of the sub-Dh4 million category, Allsopp points to Jumeirah Golf Estates where the latest phase of the development sold out over one weekend, to the value of Dh30 million. “These aren’t investors buying off plan, these are regular people looking for family homes to live in and as a developments come close to handover the stock increases and we’re seeing huge demand from the retail market looking to purchase family homes.