Rise in real estate funds targeting UAE distressed sales

The UAE is set to see an increase in ‘vulture’ funds targeting the rise in distressed real estate assets coming onto the market towards the end of the year, Arabian Business has learnt.

The Global Distressed Property Monitor, compiled by the Royal Institute of Chartered Surveyors (RICS), found that the number of distressed assets coming onto the market in the UAE increased in the third quarter of 2010 and will increase further in the last quarter of the year.

Jonathan Fothergill, director of valuations at Cluttons UAE, which took part in the RICS survey, said “it is also no surprise that we are witnessing a number of so called opportunistic 'vulture' funds emerging and being increasingly active in the market.”

He confirmed that a number of GCC and international funds are “currently undertaking due diligence on the Dubai and Abu Dhabi commercial and residential real estate markets who are taking the view that we are moving close now to the bottom of the market, and that the next six months or so provides the optimum time horizon for real estate acquisitions.”

Evidence of such vehicles operating in the market was highlighted last week by the launch of the UAE's first Real Estate Investment Trust (REIT), a joint venture by Dubai Islamic Bank and French property firm Eiffel Asset Management.

“The timing of this would indicate that there are both an increasing number of assets available to buy at the right price, and a growing confidence that property investment requirements are changing to long-term, low risk and secure profiles,” said Murray Strang, senior valuations officer at Cluttons UAE.

The increase in distressed selling was echoed by Tom Bunker, investment sales consultant at Dubai-based agency Better Homes. “We have already seen examples of [distressed] properties hitting the market well below what they were purchased for and in some cases below the price level at which they were originally sold by the developer,” Bunker told Arabian Business.

Dubai’s real estate market was hit hard by the global recession and prices have dropped nearly 60 percent since the boom era in 2008. However, many high profile observers believe the market has not bottomed out and will decline further.

HRH Saudi Arabia’s Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, one of the richest and most influential businessmen in the Arab world, told Arabian Business prices were likely to fall substantially and the head of JP Morgan’s Middle East private banking unit forecast that prices could drop another 20 percent, to as much as 80 percent from the height of the boom.