Flattish and weaker real estate performance in the GCC is not turning away investment managers who are entering the market with Islamic REITs to ride on cheaper property prices amid anticipation of increased sector activities over the medium term. VINEETA TAN takes stock of current market developments.
The last six months have seen a surge in Shariah compliant REIT vehicles in the Gulf namely in the UAE, Saudi Arabia and Bahrain as new regulations pave the way for sector development bolstered by softer asset valuations.
Calling it the “perfect time” to enter the UAE market, Fawad Tariq-Khan, the director of investments at Abu Dhabi Financial Group (ADFG) which manages US$5 billion-worth of assets, explained that investor appetite in the maturing UAE property market is still robust. ADFG is the latest entrant in the market, launching its first Islamic REIT this week, the Etihad REIT.
Actively seeking to expand and diversify its portfolio mix which currently comprises 10 income-producing assets across four emirates in the UAE investing in retail, residential, warehousing and staff accommodation sectors, the firm confirmed that an IPO is in order.
SHUAA Capital and National Bank of Abu Dhabi will manage the IPO as lead financial advisors, global coordinators and joint bookrunners.
The new REIT comes on the heels of the listing of Emirates NBD Asset Management’s Islamic REIT on NASDAQ Dubai last month and the launch of Equitativa Real Estate (the manager of the world’s largest Shariah REIT by assets — Emirates REIT)’s Residential REIT in February. IFN understands that Equitativa is working on rolling out more REITs, including those with foreign exposure.
The UAE real estate market has been sluggish with property prices slipping in 2016 and few signals of major recovery this year. In Dubai for example, residential rentals dropped 7.9% for villas and 2.9% for apartments last year with little movements in rents or prices in the first quarter of 2017.
“Given the continued slowdown in the Dubai economy, and its dependence upon the global economy where growth remains uncertain, any recovery in residential prices in Dubai is unlikely before late 2017 at the earliest,” according to advisory firm JLL.
There are, however, some potential reprieve. The almost stagnant market price changes in the first three months of the year suggest that the residential sector could be close to the bottom of its current cycle; which means the only way is up moving forward.
In the office segment, more offices are also being taken up: vacancy rates in the Central Business District continue to moderate bringing the current rate to 14%, which indicates stronger demand, opined JLL.
The spur in REITs is one expected to improve market liquidity and capture the investor dollar which is gravitating toward broader portfolios — this trend is also expected in Saudi Arabia which welcomed several Islamic REITs over the last half a year, with more anticipated over the next few months as property valuations and rental yields remain depressed. Jadwa Investment this week concluded the IPO of its inaugural Islamic REIT.
“We predict there will be increased activity in the real estate sector through the public investment fund, the listing of further REITs, taxation reforms and a series of public-private partnerships or PPPs,” Craig Plum, the head of research at JLL (MENA) noted, adding that 2017 is set to become a “watershed” year for Saudi’s real estate market as the economy adjusts to lower economic growth and prepares for Vision 2030.