New property funds fail to lure investors

Lack of viable deals in region's markets despite price drop.

Investors are turning their backs on property funds set up to buy discounted developments in the country because of a lack of quality projects. Several investment funds were announced during the past year as companies tried to cash in on a fall in property prices of almost 50 per cent in some areas, but so far they have yet to make a single transaction.

"The reason behind this is that it is difficult to identify investment grade assets offering competitive yields," said Noura Yassin, the director of valuation and consultancy at CB Richard Ellis Middle East. LRIM Investment Management, a private equity research company in Dubai, has even decided to shift its focus to properties with higher yielding rents, in markets such as the US. The company has linked up with Tate Capital Real Estate Solutions, a property company based in the US, to find Gulf investors for distressed assets in the US.

"There still seems to be a wide difference between the price sellers want to sell for and the amount buyers want to pay," said Tom Arnold, a director at LRIM Investment Management. The impending strata law in Dubai, which will hand the management of multi-unit buildings and developments over to property owners, could also be slowing investment. "What's more attractive to our investors are assets without a strata law; investors don't want to rent property with fragmented ownership," Mr Arnold said.

"They make money through the management of the asset and it's pretty difficult to do that if they don't have full ownership." The distressed property funds were widely seen as catalysts for a recovery in the property market. Tasweek, a property company in Abu Dhabi, said last September it would raise Dh918 million (US$249.9m) for distressed properties in the capital and Dubai, while Markaz, a Kuwaiti investment company, said in August it was considering an investment of Dh183m on Reem Island.

Matrix, a UK investment company, and the US-based Hines have also announced distressed property funds for the UAE. "The market at the moment doesn't lend itself to institutional investment," said John Davis, the chief executive in the Middle East for the property consultancy Colliers International.