Alternative real estate assets M
any real estate investors in the UAE automatically think of villas or apartments when they consider investing in property. However, there are a number of alternative sub classes in the real estate market that a buyer can consider. Expanding beyond villas and apartments offers investors portfolio diversification and the possibility of enjoying a more hands-off investment. Buyers in the UAE have for several years favoured serviced apartments — a property type offering purchasers a turnkey solution, with full fit-out and furnishing often included in the sale price and a regular return via a rental pool. As such, owners don’t need to worry about directly managing the property and arranging tenants as someone else is doing this for them. In Dubai these types of units have traditionally been available in upmarket locations such as Downtown Dubai and Dubai Marina, however, over the last couple of years developers have launched more affordable offerings in newer areas such as Business Bay, Shaikh Mohammad Bin Zayed Road and districts close to Al Maktoum International Airport and the Expo 2020 Dubai site. While a serviced apartment can be quite an easy form of property ownership, buyers need to pay close attention to the rental pool arrangements detailed in the operator’s agreement and be aware of high fees and possible limitations on self-usage.
Hotels
Dubai’s growing hospitality sector has brought focus to hotels as an alternative asset class in recent years. With entry prices for whole buildings out of reach for most, except corporations and institutional investors, innovative concepts for the sale of individual hotel rooms have been introduced. Similar to the serviced apartment model, this structure offers private
While retail units in Dubai’s acclaimed malls are not available for individual purchase, single shops can be bought in towers in Dubai Marina, JLT and Dubai International Financial Centre.
buyers an opportunity for hands-free ownership after buying a single hotel room. Well-located properties run by premium operators could prove an attractive investment, subject to the future trajectory of the city’s hospitality sector and financial performance of the hotel.
Commercial
Even modest real estate investors with a budget of Dh1 million can consider acquiring commercial property such as office and retail units. Offices in areas such as Jumeirah Lakes Towers (JLT) and Business Bay have suffered capital declines over the last few years, falling 17.6 per cent and 24.1 per cent respectively since 2015. This price discount presents an opportunity for private purchasers with limited budgets, and possible upside gains on market recovery. While retail units in Dubai’s acclaimed malls are not available for individual purchase, single shops can be bought in towers in Dubai Marina, JLT and Dubai International Financial Centre. Suburban offerings are also available in locations such as Jumeirah Village Circle and International City. While commercial real estate landlords generally enjoy a more business-like relationship with their tenants, as compared to residential investors, their rental income is dependent upon the success of their tenant’s business.
Some suburban retail units have seen pressure of late, with increased competition from new and more sophisticated neighbourhood malls, on-line shopping alternatives and cautious consumer sentiment. Other forms of alternative real estate asset classes include self-storage, student accommodation and retirement villages. Similar to some of the aforementioned models, these investments allow purchase of individual units with income enjoyed by way of a rental pool. While not yet generally available in this region, these types of assets have seen increased prevalence in western markets — especially privately provided student accommodation, which has evolved significantly in university towns in the UK.
REITs and funds
Private investors interested in real estate can also consider allocating to real estate investment trusts (REITs) and real estate funds. These investment vehicles offer individuals the opportunity to target professionally managed offerings with specified strategies — some funds are very broad in their approach and others much more focused. REITs are stock-market listed and allow investors to buy and sell shares in any volume whenever they wish. Real estate funds are generally promoted by banks, financial institutions and insurance companies — these may
have more restrictive entry and exit rules than REITs and the minimum financial allocation may also be higher. Under the guidance of expert fund managers, both REITs and real estate funds provide ordinary investors with an opportunity to enter a market they otherwise could not afford such as larger commercial real estate assets, and the prospect of targeting sectors they see as holding strong future prospects. Both REITs and real estate funds are available locally in the UAE and are currently witnessing a growth in offerings, with several new launches expected soon. The disadvantage of these structures over traditional bricks and mortar investments is that they cannot be directly leveraged by
way of a mortgage and some of the funds have limited options for exit.
Other assets
Institutional investors, such as banks and pension funds, can also consider alternative real estate assets such as multistorey car parks, private schools and hospitals. While requiring significant amounts of capital outlay, these asset types can provide opportunity for diversification into market segments, such as by way of sale and leaseback structures, which may offer good returns even during a general real estate market down turn.