IPOs could eat into funds meant for realty

In­sti­tu­tional funds in par­tic­u­lar could seek eas­ier op­tion of tak­ing ex­po­sures in IPOs

Gulf News - - Region -

The up­com­ing IPO from Emaar could suck up some of the liq­uid­ity cur­rently float­ing around in the UAE’s prop­erty mar­ket. In­sti­tu­tional in­vestors, in par­tic­u­lar, might con­sider pick­ing up size­able chunks in the IPO - and thus aim for quicker re­turns — than go through the more elon­gated process in­volv­ing realty trans­ac­tions.

As such, deals in­volv­ing com­mer­cial real es­tate — where in­vestors come in and ac­quire mul­ti­ple floors or en­tire build­ings - are still few and far be­tween in the UAE.

Is­sues in the pipe­line

“The IPO tends to draw in those who are real es­tate in­vestors,” said Ni­cholas Ma­clean, manag­ing di­rec­tor at CBRE M.E. “There’s the Emaar IPO next month and there are the ru­mours of some gov­ern­ment en­ti­ties in Abu Dhabi go­ing through the same process. Th­ese are all ways to grow liq­uid­ity in the mar­ket… but it could mean at the ex­pense of ac­tual prop­erty deals.”

The Emaar IPO open for sub­scrip­tion on Novem­ber 2, with the com­pany look­ing to list 20 per cent of its de­vel­op­ment arm on Dubai Fi­nan­cial Mar­ket. Novem­ber 16 is when it ex­pects to an­nounce the share price. The share set aside in the of­fer for in­sti­tu­tional in­vestors will be known by Novem­ber 2 or so.

Ac­cord­ing to the new CBRE re­port, while off­plan and land sales in Dubai have seen sharp gains over 2016, there is still im­prove­ments that can be made on deals in­volv­ing com­pleted build­ings. In first-half 2017 there were only 24 trans­ac­tions, which rep­re­sent 8 per cent of the to­tal value. But “th­ese fig­ures in­clude mort­gaged prop­er­ties, which make up most reg­is­tered trans­ac­tions, rather than gen­uine in­sti­tu­tional in­vest­ment sales.”

As such, prop­erty sales in Dubai in­volv­ing in­sti­tu­tional in­vestors was less than Dh2.6 bil­lion (this ex­cludes gov­ern­ment to gov­ern­ment trans­ac­tions, sale of land, etc.) “It’s clear that the re­gion is still at a nascent stage with re­gards to in­sti­tu­tional in­vest­ment,” the re­port notes.

Of the ma­jor deals in­volv­ing of­fice build­ings be­tween first-half 2016 and first-half 2017, there were “sales in Emaar Square and Dubai In­ter­net City, both of which are let to HSBC. Sev­eral in­dus­trial port­fo­lios have also been sold,” CBRE notes.

Ac­cord­ing to Ma­clean, “The lack of ac­tiv­ity at the mo­ment is in sin­gle build­ing sales, where in­vestors come in and buy the whole build­ing, hold it for three years, do some work on it and sell for profit. That doesn’t hap­pen of­ten enough.

“If that hap­pens, it would be the best way to cap­ture a greater slice of global cap­i­tal flow go­ing around. At the mo­ment, the in­bound share for the Mid­dle East is rel­a­tively low.

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