UAE Real Estate Sector to Gain Traction in 2016

According to international real estate investment and advisory firm JLL, new funding and investment schemes in UAE's real estate market are expected to gain traction in 2016 as the market struggles with overall instability and cautious funding.

In its '2016 Top Trends for UAE Real Estate', the international firm laid down eight market trends and factors that would draw a new shape and form to the country's property market throughout the year.

"Banks becoming more cautious is obviously going to cut or restrict one of the traditional sources of real estate funding," Craig Plumb, head of research at JLL MENA said.

He recalled stricter bad-loan regulations already announced by several banks, like the United Arab Bank, in their latest reports.

However as one door closes, another one opens allowing more alternative real estate schemes and funding sources to gain traction in what he called a "further maturing" real estate market in the UAE.

"We're going to see more interest in public-private partnerships [PPP], the UAE has announced new laws in the back of last year to allow public-private partnerships," Plumb said.

Such tie-ups have been reported in infrastructure or transportation projects, but no official PPP directly related to real estate has been announced.

Beyond funding sources, JLL predicts that relatively new investment and transactional schemes, like build-to-suit projects and sale & leaseback investments, also have the potential to gain popularity in the UAE's property market.

Build-to-suit refers to developers building to the specifications of corporate tenants or building "inside out", and focusing on efficient spaces, with the latter being especially true for office spaces, according to JLL.

Meanwhile, sale & leaseback, a scheme more prevalent in mature property markets, can be seen more often around the UAE, especially Dubai, given its positioning as a regional and global facility.

"Built-to-suit is a mechanism for developers to raise finance on the back of a pre-lease to a major corporate; whether that is a commercial corporate like we've recently seen with HSBC, or whether it is a school or a hospital like GEMS or Medcare," Plumb explained, referring to entities that have experiences sale & leaseback transactions.

"A corporate operator will take a long-term commitment to a building… [making it] a more attractive investment, and based on that you can raise the finance… so I think we could start seeing more activity in that space," Plumb said.

He noted that the concept of strong, long-term lease contracts is not very common in the UAE or the region, but added that - given the need and potential benefits - it could be a go-to investment.

"One of the constraints in this region is the lack of properties where a strong, long term lease is in place, and that's the constraint at the moment, but I think more and more developers are looking to reposition their properties to allow that to happen," Plumb added.

Overall, aside from the expected impact of low oil prices, geo-political events and other macro-economic factors shaking up the region, JLL predicts that new approaches to the property market is a sign of its increasing maturity.