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Thu 27 Oct 2011 11:04 AM

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Dubai $1bn real estate fund may entice new buyers

State-backed investment may lure other buyers, funds off the sidelines, say analysts

Dubai $1bn real estate fund may entice new buyers
A model at Cityscape Global shows a mock-up of Dubais real estate projects

The launch of a $1bn real estate fund to buy up assets in
Dubai’s struggling property market may entice other investment firms off the sidelines,
property analysts said Thursday.

The vehicle, a joint venture between state-controlled
Investment Corporation of Dubai and Canada’s Brookfield Asset Management, will
be a moral boost to the emirate’s real estate market, the Gulf’s worst hit since
the onset of the global financial crisis.

“This is good news… it indicates the re-emergence of local
as well as international institutional investor appetite, which has been
largely absent since the on-set of the credit crisis,” said Gaurav Shivpuri,
director of capital markets at consultancy Jones Lang LaSalle.

“The fund, even with moderate leverage, would have
substantial strike power… it will provide a moral boost to what has been a
relatively benign investment market for the past 24 months.”

ICD, Dubai’s main investment vehicle, and Brookfields will
each seed the fund with $100m, an emailed statement from the pair said
Wednesday.

The fund will have a maximum cap of $1bn and a life of eight
to 10 years. It will focus on a wide class of assets in both freehold and
non-freehold areas, the statement said, and a limited number of local and
international investors will be invited to invest in the scheme.

Its launch is a sign that house prices in Dubai are showing
signs of stability, said Priyesh Patel of Aston Pearl Real Estate. The fund
offers buyers “assurances that it’s not just the agents talking up the market” she
said.

“In some developments [house prices] have reached a point of
stability, but if you looked at the overall market then there is going to be
more downsize. Some have reached rock bottom but I don’t expect to see any
great capital growth.”

Charles Neil, CEO of real estate agency Landmark Properties,
said the $1bn fund was unlikely to be the last of its kind to target the Dubai market.

“We are working with other funds that also seem to hold a
similar view,” he told Arabian Business. “The opportunities for these funds is
to acquire existing assets that offer long-term rental yields and potential for
capital gain, and there is potential for funds to provide equity to projects that
are near completion, have run out of money and are unable to finish construction.”

But Neil warned that funds may struggle to secure regular
returns on lease portfolios as a result of the structure of some rental
contracts in Dubai.

“Finding projects with a long term yield/income flow is not
easy given that most leases in the UAE tend to be short-term, and therefore to
structure deals around income flows that are volatile is extremely difficult.”

Property prices in Dubai soared after the city opened its
real estate sector to foreign investors in 2002, granting them freehold
ownership rights at many developments.

From start-2007 to mid-2008, prices rallied almost 80
percent, Morgan Stanley estimates showed, with billions of dollars worth of new
projects launched by local developers.

But home prices in Dubai, the Gulf property market that had
the biggest reversal because of the financial crisis, fell more than 60 percent
in the wake of the global credit crunch.

House prices in Dubai showed signs of recovery in the third
quarter, with slight rises in prime projects such as Palm Jumeirah and Arabian
Ranches, Jones Lang LaSalle said in September.

But analysts remain concerned that the estimated 33,000 new
homes scheduled to hit Dubai’s market by end-2012 could cause fresh declines in
rental and sale prices. Rating agency Moody's said this week that house prices
are unlikely to recover until 2016.

opsecusa 8 years ago

The title of the first article for this P.M. Business.com publication reads:

"Analysts warn of 30% fall in UAE house prices on excess supply"

Would the analysts that made the above statement care to comment on this article?