Individual investors and institutional funds have available liquidity, but are holding off on investing in assets in Dubai due to the lack of clarity as to the true situation on the ground, according to a panel of industry experts. Despite this short term gap, the emirate has the fundamentals to attract international interest in the medium to long term.
Although Dubai's real estate market has not currently seen any major movement by property funds planning acquisitions of distressed assets, these are monitoring developments in the emirate.
'Although there have been 'distressed' sales by individuals, a number of investors have been helped by a number of easy payment plans and similar initiatives by developers,' Markus Giebel, CEO of Deyaar, told attendees at a Cityscape Connect gathering.
'Real distress will come when developers stop these plans, and the misfortune for those who cannot pay is an opportunity for these funds – and the funds will come, that's for sure.'
Fellow panellist Marwan Shehadeh, Managing Director of Al Futtaim Capital agreed, pointing out that the majority of the group's property fund has yet to be spent.
'The issue is risk aversion, it's no longer liquidity. We have plenty of money, but where do you put it,' said Shehadeh.
'Two thirds of our fund is not yet deployed. There is a lot of uncertainty in the market, and there is no pressure from our investors to spend the money. Everybody realises that there may be further downsides and is waiting for the bottom. The issue with Dubai is that there is still a lack of clarity in terms of the amount of supply and demand, and that is what real estate is about. People are only willing to invest where they see a clear shortage of supply.'
Long term strategy
With developers in the emirate looking to diversify their business models to adapt to the new realities in the market, some are looking at the options of using their funds to buy back units in their own developments.
These units can then be used to provide recurring income from rentals while developers wait for price on the market to begin to rise again, before releasing them for sale.
'Now is a great opportunity for developers to take back well valued assets and hold on to them while the market settles, say two or three years until we see appreciation, and then sell them on,' said Giebel.
'If we recover units from investors who have to opt out as they can no longer make the payments, and then sell them straight on at less than the bottom end of the market, we will only serve to destabilise prices even further, which does not help anybody.'
Giebel also told attendees that Deyaar expected to begin raising the outstanding Dhs300m of capital for its Dhs500m distressed debt fund within the next few weeks. The developer and Dubai Islamic bank have already put Dhs200m into the fund.
Deyaar is also looking at investing into international markets as part of its longer term strategy. As well as being close to agreeing a deal in Lebanon and Saudi Arabia, the company would be examining opportunities in 'high risk, high reward' countries such as Iraq.