Dubai’s freehold market may have entered a period of consolidation as financially strong investor-developers target the land and property assets held by the land and property assets held by weaker rivals in the field. In certain instances, their interest could extend to acquiring the competing developer as well.
The Select Group, which has major ongoing projects in Dubai and Ras Al Khaimah, recently completed just such a transaction by acquiring Star Group Global.
“We took over the company at a time when it was going through considerable financial distress and existing investors were desperate to sale their properties even below original price,” informs Rahail Aslam, Chairman and CEO of Select Group.
“Construction was completed on the first project, Yacht Bay, and already delivered to the customers. Oceanic, the second project, is well underway. Both properties have appreciated by around 60 per cent since the acquisition by Select Group.”
“Our extensive planning and experienced business practices have helped us achieve the status of the biggest private developer in Dubai Marina. All these factors, along with our absolute belief in the Dubai’s real estate market as a solid investments option, made this an obvious decision for us.”
The escrow trigger
Expectations of a major consolidation process in Dubai’s developer base were being actively mooted following the passage of the escrow regime and the stringent compliance standards that it entails. More pertinently, it does away with the developer’s flexibility in launching off plan sales on multiple projects and somehow hope that the construction part of the process will somehow fall into place. It is also a fact that the steep rise in the cost of development should play a major part in such a consolidation process. Less financially sound developers would rather dispose of their projects or plots rather than get mired deeper in the red.
Jesdev Saggar of UK-based Echelon Capital, which has expanding investment interests in local real estate, says, “This is exactly what we as ‘Vulture Capitalists’ have been positioning ourselves for around developers who are perceived as offering quality projects. The process has played out in other markets which have gone through their own versions of a real estate boom.After the churning, the market as a whole has emerged stronger.
On expected lines
For Ryan Mahoney, Managing Director of Better Homes sighting of these trends in Dubai is not a cause for concern at all. On the contrary, “I think that this is an expected result of the increased regulation of the market,” he says.
“Three years ago, the market had a large number of developers that were financing their projects through the off plan sale of their properties. People without much development experience and limited funds were developing property because the barriers into the business were low.
“This created a concerning situation because a slow down in sales could stop the development of a large number of properties which could lead to dangerous, low confidence levels across the market. RERA and the many regulations that they have introduced, particularly the escrow law, have reduced the number of small and poorly-financed developers in Dubai.”