Thursday, July 09, 2009

Distressed funds await entry into Dubai realty

Several distressed funds are waiting to jump into Dubai's real estate market and invest in few of the attractively valued assets, industry experts revealed on Tuesday.

Although no distressed funds are yet active, the few that are in pipeline will increase confidence in the market and rescue defaulted assets.

The Chief Executive Officer of Investment Boutique, Heather Wipperman, said although there are direct investments, it is taking much longer, as people hesitant and cautious. Several distressed funds are ready to enter the market.

When the fund is raised, it goes in and buys assets under default. The fund then holds these assets until the market recovers and then releases back, said Marwan Shehadeh, Managing Director, Al Futtaim Capital.

Shehadeh continued that funds are a hot subject now. People are finding it difficult to get into investments at this time and now with the onset of summer and Ramadan, the major bonds are coming due, so people are waiting to see what happens there.

Traditionally, distressed funds get effective when the market has bottomed out. Experts in Dubai feel that property market is yet to hit the bottom or is very close to it.

Property prices in Dubai have dropped to levels never seen before, and although there have been cases of distressed sales and property auctions; the general sentiment in Dubai is more buoyant than in previous month.

The terms distressed asset is applicable to properties whose value is much lower than it should be. The sales come from the default rate. The real distress happen when developers stop easy payment plans and those who cannot pay becomes the opportunity for the fund, explained Markus Giebel, Deyaar Chief Executive.

Although the distressed sale numbers are dwindling in Dubai, real estate activity requires a serious kick-start. It will do good to the market, to get to a point where the funds can acquire a complete portfolio or half portfolio, buying in bulk, as they will be able to get considerable discounts. With several initiatives, there are no considerable distressed funds that are active today, Wipperman said.

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