IPOs could eat into funds meant for realty
Institutional funds in particular could seek easier option of taking exposures in IPOs
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.