Mubadala Real Estate, the property division of Abu Dhabi’s state investment fund Mubadala Investment Company, is in talks with potential joint venture partners to develop future projects, and plans to launch a real estate investment trust (Reit) as it prepares for an expected uptick in the UAE property market from 2019.
"We're in discussions with two or three developers to do joint ventures with them on a plot-by-plot basis," Ali Eid Al Mheiri, executive director of Mubadala Real Estate, said in an interview with The National. "Those talks have yet to be finalised, [but] we should be able to announce them in 2018."
The company would not merge with another developer, he said.
Last month, the UAE’s two biggest developers, Aldar and Emaar Properties, entered into a strategic partnership to develop future schemes in the UAE and beyond. The announcement “sends a good signal to the market that there will be coordination in terms of control of supply”, Mr Al Mheiri said.
The UAE real estate market has witnessed a slowdown due to an oil price slump that has crimped purchasing power and weakened demand. An abundance of new supply despite tough conditions has pushed residential rents down by almost 10 per cent year-on-year in Abu Dhabi and sales prices by around 2 per cent, according to consultancy Asteco.. Prices are expected to continue to decline throughout 2018 before recovering in 2019, according to consultancy Asteco.
Mr Al Mheiri said he sees growing demand for Reits especially while the market is tough. Compared to equity investing in a real estate company, which involves “taking the share price risk of the company, driven by the sentiments of the market”, investing in Reits is more appealing.
“A lot of people would like to invest in real estate assets but can’t afford to buy a portfolio of buildings or even a building. But when you invest in a Reit, you’re investing in the income generated by the assets, the long-term leases,” he explained. “I think people are hungry in the region for investment into Reits.”
Mubadala’s proposed Reit would initially incorporate assets from the half-developed Al Maryah Island, the free zone that houses Abu Dhabi Global Market (ADGM).
“Once we have critical mass – once our [buildings] at Al Maryah are leased at a certain level – we may consider doing a Reit and listing it to the market,” the executive director said, whithout specifying where the listing will take place.
The plans are likely to be implemented within the next two years and the investment vehicle will probably include a combination of residential and commercial properties, he said.
Reits are listed funds that own income-producing commercial real estate and are legally obliged to distribute a proportion of their income, usually 80 or 90 per cent, as dividends to shareholders.
The investment instruments are gaining popularity in the Arabian Gulf as investors seek more liquid real estate assets than standalone buildings. The largest Reit in the UAE, Emirates Reit, which is owned by Dubai-based fund manager Equitativa, has more than $1 billion of real estate assets under management. Alternative investment fund, Abu Dhabi Financial Group, plans to launch its sharia-compliant Etihad Reit in the first half of 2018, subject to regulatory approvals.
Mubadala Real Estate aims to complete 60 per cent of building and infrastructure works at Al Maryah by around the end of 2019. The free zone houses La Galleria Mall, four office towers, the Four Seasons and Rosewood hotels, the Al Maryah Central mall, and two residential towers yet to be be completed. Work is expected to start on the remaining 40 per cent of the mega development in the next 12-24 months once the developer hits 80 per cent of phase-one sales target.
“We’ve seen a great softening in the UAE [property market],” Mr Al Mheiri said. In Abu Dhabi, the consolidations have caused some people to be more cautious in how they spend their income; we have seen people going from bigger to smaller units, and people moving from villas to apartments because the cost of living went up.”
Price softening will continue in 2018 but the market is likely to recover in 2019 subject to greater equilibrium between supply and demand and local economic growth. The office sector is currently 30 per cent oversupplied, he noted.
As well as Al Maryah Island, Mubadala Real Estate is revising the masterplan, unveiled last April, for its Arzanah project, a proposed 1.9 million square metre mixed-use community near Zayed Sports City in the emirate.