UAE real estate mergers seen rising in 2010

An increase in mergers and acquisitions will be one of the major trends to emerge in the UAE real estate sector in 2010, a senior management consultant has predicted.

Dr Sven-Olaf Vathje, who is a partner and managing director at management consultancy firm Boston Consulting Group (BCG) and specialises in the real estate sector, said the increase in mergers and acquisitions in the UAE real estate sector would be an inevitable step for the industry.

“Like many fragmented industry, the stronger players in the market will take over the weaker players in the market,” he added.

The Dubai real estate market is already quite fragmented, with 2,206 brokers currently listed by the Real Estate Regulatory Authority (RERA).

The emirate has already shown an appetite for mergers when there was an attempt to merge Emaar Proeprties with the three developers Dubai Properties, Sama Dubai, and Tatweer.

Although the Emaar merger was later aborted, it was reported in November that while M&A activity as a whole had declined by 29 percent in the UAE it was still performing better than the global industry as a whole, which declined 46 percent in the year to October 2009.

Vathje added that he believes the slowdown in the UAE market will also see a shift in priority from project development to project management and restructuring.

As speculators have dwindled and end users have become the dominant force in the market, he believes some refurbishment, redevelopment and redesign of projects will be needed to adjust them to the new market focus.

One specific area he advises is for developers to include more schools in their projects as he says these have shown to be attractive incentives for potential buyers.

Other trends he sees emerging are: an increase in institutional buyers replacing cash buyers and existing owners in the UAE trading up to bigger and better quality units in order to take advantage of the recent price correction which has seen prices fall from up to 60 percent from their peak.

The comments came the same day as a report by brand consultants at FutureBrand found that the reputation of some high profile UAE developers had been hit hard by the global downturn.

Nakheel, the developer of The Palm and The World, continued to decline as a brand, the report said.

While it is still the second most recognised developer in the Gulf region, it has fallen to seventh in both reputation and developer preference, FutureBrand added.

Damac Properties, described in the report as the ultimate challenger brand in the region, rose dramatically over the past few years, the report said, but 2009 saw its brand take a hit.

Emaar Properties remained the top developer brand in the Gulf although its lead over its rivals dropped compared to 2008. In 2009, it still led the way for developer recognition, reputation and preference.

The study also ranked developers on future prospects and asked respondents to say which company they saw faring best in the current economic slowdown.

Emaar again came out on top, taking 50 percent of the vote, with Aldar (10 percent) and Nakheel (seven percent) completed the top three. However Nakheel also featured in third place when people were asked which developers would fare the worst.

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