The Dubai real estate market is very much in the news at the moment with demand for real estate in Dubai seemingly endless. There have been some concerns that perhaps the market has pushed ahead to far too quickly although the situation today is very different to that which preceded the 2008 crash. However, we are now starting to see an interesting development in investment markets with property developers in Dubai, such as Deyaar, now looking to increase foreign ownership of their shares.
If you were sceptical, perhaps you might see this move as a means of cashing in on the very buoyant Dubai real estate market or is it indeed the next natural step for Dubai real estate companies?
How is foreign ownership handled today?
Firstly, we are not suggesting that Dubai is in any way different from many other investment arenas around the world which prohibit, or strictly control, ownership of shares by foreign investors. At this moment in time Deyaar allows nationals from the “Gulf Cooperation Council” to hold up to 49% of the company shares but no foreign investors outside of this organisation.
Quote from PropertyForum.com : “At this moment in time there is no doubt that Chinese investors are moving real estate markets around the world, investing billions of dollars and there are no sign of a reduction in this investment in the short to medium term.”
Interestingly, when you bear in mind that the Dubai real estate market is going from strength to strength, share ownership from nationals who are part of the Gulf Corporation Council only accounts for 3.7% according to stock market data. Quite how we should interpret this relatively low figure is unclear, does it show a lack of interest in the specific company? Have investors had enough of real estate in the short term?
The move to increase foreign investor ownership to around 25% of Deyaar’s share capital will need to be rubberstamped by shareholders but there should be little in the way of problems with this. There are many other UAE based companies, both within the real estate sector and outside of this particular area, that are also looking to introduce foreign investors to their shareholder list.
The increase in foreign investor exposure offers a number of potential long-term benefits which include greater coverage by research analysts, the potential to tap far larger investment markets as well as the opportunity to extend a company’s tentacles to other parts of the world. It is also interesting to note that many of these companies looking to increase foreign investor shareholdings will benefit from a change in their MSCI status to “emerging market status” in May this year.
Opportunistic or long-term planning?
At this moment in time the jury is out with regards to whether this move is opportunistic or long-term planning. It may have gone down better with foreign investors if this change in share ownership rules was introduced prior to the ongoing real estate boom in the UAE, then again, it is the ongoing boom which has put the focus very much back upon the region. The reality is that to be a major player in the international real estate market there is a need to involve foreign investors and to use their skills, knowledge and capital investment to build a long-term business.
However, how would foreign investors feel if they jumped into the Dubai real estate market just prior to a short-term correction?