Saturday, October 29, 2011

Dubai’s launches new fund to focus on domestic real estate market

Dubai has launched a fund that focuses on its domestic real estate market, as the government aims to strengthen property prices, which have fallen two-thirds from their peak in 2008.

The government’s Investment Corporation of Dubai (ICD) and Brookfield Asset Management will contribute seed funding of $100mn into the $1bn capped fund.

The Chief Executive of ICD, Mohammed al-Shaibani, said that ICD is looking forward to help in recovery of Dubai property market.

The government has also received some informal commitments from investors in other parts of Gulf States.
The 8-10 year fund marks a considerable government intervention into the broader real estate market of Dubai.

Dubai had received a $20bn bail-out from the UAE and Abu Dhabi, to write-off default in 2009. Early this year, it completed the $25bn re-structuring of the troubled ‘Dubai World’ conglomerate.

The government, as a part of its re-financing efforts, pumped in $9bn into the development arm of Dubai World, Nakheel. Further, to help revive interest in the Dubai property market, the residency visas linked to property ownership were extended from six months to three years, by the UAE government.

The fund “combines strategic intervention with potential commercial opportunity,” coming amidst signs of recovery as prices stabilize in popular districts around the world, including the world’s tallest tower, Burj Khalifa.

However, oversupply continues to be a concern with the rest of the real estate market, with could lead to price declines by another 20 percent, revealed a local investment bank, Arqaam Capital. But, there are several encouraging signs, with the arrival of long-term capital into the sector, marking early signs of recovery of the market, said Bruce Flatt, Chief Executive of Brookfield.

Dubai has grown to be a safe haven during regional turmoil, as Arab revolutions have led to a situation of instability to the MENA (Middle East and North Africa). The core businesses of trade, transport, and tourism have also been growing strongly over the past several years, as the city plunged into recession in 2009.

However, the cause of concern is the impact of global slowdown on Dubai’s open economy, and its ability to re-finance the $110bn debts, with $14bn of them likely to mature in 2012.

The fund is a good start, and is a step in the right direction, which can drive confidence back to the market. Dubai, may be close to the bottom, but it will see some upside within months, commented V Shankar, Chief Executive of Standard Chartered – Europe, Middle East, Africa and America.

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