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27 February 2024

'Institutional investors can help sustain growth'

The idea of property firms launching real estate funds is a step in the right direction, says Vathje. (EB FILE)

By Parag Deulgaonkar

Opening the door to institutional investors and funds might be a way out for regional property companies to sustain growth, believes an industry expert.

"We haven't seen institutional investors in this part of the market… so opening the door will be the way to sustain growth," Dr Sven-Olaf Vathje, Partner and Managing Director, the Boston Consulting Group (BCG), told Emirates Business.

Vathje said BCG was in discussions with institutional investors who are observing the region. He did not give further details.

"Institutional investors from the US and Europe are far away from this market… they want to see a more 'trusted' infrastructure before they invest. We expect them to move into the region in the next couple of years."

Asked if the UAE may witness the launch of any real estate investment trusts (Reits), Vathje said: "Reits have not happened because there were a lot of buyers during the market peak who were ready to take off-plan apartments developers were proposing. And so there was no immediate need to have another group of buyers such as Reits funds. But I believe we are going to see more funds… the market will decide whether it will be a Reit structure or closed-end fund."

More than 20 markets worldwide have Reit regulation, including Dubai since 2006, which has helped fuel growth with a global Reit market cap of more than $700 billion (Dh2.56 trillion) in 2009.

On the idea of property companies launching real estate funds, he said such a fund is a step in the right direction. According to Vathje, price volatility in the UAE market is "absolutely normal" as the market has gone through a long period of growth.

"Price volatility is absolutely normal. The long-term price increase we had seen was something more unusual."

Asked if the market had bottomed out, Vathje said it was difficult to predict when the market would bottom out, as it was quite unique since cash buyers undertook a lot of investment.

"Cash buyers will not leave the market because they are not under pressure to refinance their debt… And that is certainly helping the market."

Earlier this month, HC Securities said the last two months of 2009 recorded month-on-month rental gains of two and one per cent, respectively, underlining the stabilisation trend. However, some research reports said prices in Dubai's property market were likely to drop further this year.

Vathje believes the "big wave of cancellation has already been announced with a number of projects being put on hold."

"I believe developers are going to observe at what point it makes sense to reactivate these projects… some of them are going to come back but may be in a different shape and size."


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