One of Dubai’s biggest developers has just under £1bn of real estate opportunities up for grabs, and the door is wide open to European investors. Nakheel boss Ali Rashid Lootah tells Emily Wright why the time has come for an Emirati revival
“There are no limits.” Ali Rashid Lootah pauses for a second, leaning back in his chair to take a sip of water – room temperature, no ice. “That is my message for 2016. In Dubai, there are no limits.”
When the chairman of one of the UAE’s biggest developers makes such a bullish statement, it is hard to gauge the appropriate reaction. Is it good news? Or a big red flag flapping in an already pretty gusty period of global economic uncertainty?
Because the Emirates have been here before. And blindly embracing the notion of ‘no limits’ played quite a major part in a real estate market that came crashing down spectacularly across the region back in 2008.
But that was then. And the chairman of Nakheel – known and widely respected for skilfully navigating the multi-billion-pound property developer giant through the last crash – is convinced that this time, things will be different.
With a fresh focus on developing retail, leisure and hospitality schemes to target a new wave of less discerning tourists in Dubai – “We are looking at three- and four-star hotels and resorts as a priority now” – and by expanding outside of the UAE for the first time, Lootah insists that Nakheel is on solid ground.
Now he is calling on institutional investors from around the world, and Europe in particular, to take his word for it.
“We have €1bn [£765m] worth of projects available for investment and joint ventures,” he says. “But that is only a very small part of the opportunity. We also have a lot of land.”
The man at the head of one of the most ambitious developers in the Middle East is keen to explain why now is the time for the rest of the world to be dipping their toes back into the Dubai market, despite falling oil prices.
But will promises of 8-10% return on investment and a government “dedicated” to protecting both overseas investors’ cash and the city’s reputation be enough to lure them to the region despite fears of history repeating?
Sustainable growth
Back in 2008, the collapse of the real estate market in Dubai was deep, painful and very public. Property values plummeted 60%, schemes were halted overnight and the city became a real estate graveyard, haunted by the spectre of stationary cranes and silent building sites.
It is hardly surprising, then, that investors and overseas developers remain nervous eight years on. Not least following reports by ratings agency Standard & Poor last month that the region’s house prices are set to fall by 10% this year as a result of “dampening oil prices”.
But Lootah insists that none of this points to another massive crash, and that the fluctuating prices are all part of a much-needed correction in the region.
“First, what happened in 2008 was a global crisis,” he says. “It was not just in Dubai. And, actually, Dubai recovered much faster than most other markets. Things are quiet now, yes. But that is a correction. And we think that by the end of this year, things will really have picked up.”
And Lootah is not only putting his money where his mouth is: he is asking overseas investors to do the same.
The developer currently has projects spanning almost 15,000 hectares in the region – enough to cover more than 21,000 football pitches and provide homes for 270,000 people. And Lootah says that by responding to regional trends, Nakheel is poised to make the most of the assets and land they have over the next decade.
Tourism boost
The group is building up the majority of its current portfolio in the retail and leisure sector, but with one big difference – it is shifting its focus from the five-star stock Dubai has become known for to respond to a new breed of traveller.
“Tourism figures in Dubai are up 10% year on year,” says Lootah. “The figure is now at 14.2m tourists a year. That is excellent growth considering the slowdown in visitors across the wider area.
“Now we want to joint venture with partners to work on three- and four-star hotels and resorts so there is something for an emerging tourism market.
“We opened our first hotel [the three-star Ibis Styles hotel] in January. And it is already achieving 94% occupancy. The demand is there.
“As I said, there are no limits for 2016 when it comes to our goals and what we want to achieve. We have the land and locations on the beach. We have space available in many different areas. On the waterfront, The Palm and then Deira Island.”
And it is the latter which Lootah appears to be particularly focused on right now. The four islands that make up the sprawling peninsula (pictured top right) in the old part of the city will become a new tourist hub where Nakheel plans to develop Dubai’s first three-star resort.
“There isn’t one here yet,” says Lootah. “That’s why we came up with this idea. To address the gap in the market and to provide more accommodation for an increasing number of tourists.”
He is actively searching for jv partners and investors to come on board and has the sales pitch ready to go. “I don’t think overseas investors are 100% aware of the benefits,” he says. “This market can offer much bigger returns than elsewhere in the world. Around 8-10% rather than 2-3%.
“And there is excellent protection now too. There is a very good registration process and all of that legislation is supported by government. The legal structure in Dubai now is very solid. The government is focused in a big way on boosting real estate here,” he adds.
Indeed, Dubai has updated its real estate laws since the last crash to try to avoid another property bubble.
There is now a much clearer legal framework to regulate transactions between developers and investors, spelling out the duties of both parties and clearly outlining the conditions for reselling properties.
We proved we can deliver, even though we went through the crisis. It was challenging, but we came back positive and have gained back a lot of trust
The aim is that this will reduce speculation, which leads to dangerously inflated costs and grows the cost of doing business and living in the emirate.
There is also now a much more rigorous system for resolving case disputes thanks to a template contract and a conventional sales and purchase agreement.
Lootah goes so far as to say that, under the new laws, the legal structure in Dubai is now “even more solid compared to Europe”, and adds that disputes can now be solved swiftly and easily.
“I would say it takes a maximum of three months and that resolutions are almost always amicable,” he says.
In the know
For bold investors looking to move higher up the risk curve, Nakheel potentially has even more to offer: access to the wider region and, specifically, markets that are traditionally hard to crack from outside the Middle East.
In March, it was announced that Nakheel would be advising Saudi Arabia’s biggest quoted property developer, Saudi Real Estate, on its projects in the region.
It signalled the first foray out of the UAE for the firm. But Lootah insists it is not solely down to a strategy to diversify away from Dubai’s sluggish market. “Not at all,” he says. “It was a case of ‘well, why not?’ They need our advice to set up an excellent landbank and for us it is good because we can see exactly what they have, what their plans are and we know what we might want to take a stake in later.
“They have a huge pipeline there. Saudi Arabia needs everything. They have a housing shortage of about 3m for a start, so they want to start development quickly across the whole country. In Riyadh, Jeddah, all over. And we want to help.”
On whether Nakheel’s overseas expansion will stop there, Lootah suggests there are ambitions to take them further afield.
“We have been approached by other countries including Vietnam and Pakistan,” he says. “And we are evaluating all of those approaches to see whether we can help them develop real estate too.”
Safe haven
If Lootah has any concerns about the ambitious nature of his goals and plans for Nakheel over the next five years, he is concealing them masterfully. Does he not worry that it will take more than a promise of decent returns to boost investor confidence?
“We have proved we can deliver,” he shrugs. “Even though we went through the crisis. Of course it was challenging. But we came out feeling positive and we have gained back a lot of trust. We build very fast and the price of property is now much higher than what our investors paid back in 2008. They have seen a 30-40% uplift.
“Take the Jumeirah Palm. Uplift here has been 30% over the last four years. On the residential side, four-bedroom villas were bought for 7m dirham [£1.3m] four years ago. Now some of them are worth 20m dirham.
“And on the commercial side, we are still much cheaper than London, Hong Kong, Singapore. The most expensive price per sq m here is probably around $10,000 [£6,800]. And, of course, there are no taxes here like there are in, say, Europe.”
On the subject of other, external factors with the power to derail the region’s growth, Lootah remains short, sharp and to the point – particularly on the subject of terrorism and geopolitical instability.
“My answer is simply 10% growth in tourism: 10% growth. It is a safe haven in the midst of all of that,” he says.
Whether or not overseas investors will agree remains to be seen.
But with tourism figures rocketing and a far gentler, measured period of growth for the market, the city could be on track to become a safe haven in an otherwise tumultuous region.
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