Ian Russell, a Scottish entrepreneur and a property tycoon is expecting returns of around 30% in his emirates fund. Kristy Dorsey writes, the property flourish that energize the extraordinary expansion of Dubai and proven runaway success.
For Tourist and well-off expats, Dubai is just more than a recreational area, while oil and gas remain major earners, they contribute only 6% to an £18 billion economy that now embraces flourishing tourism and sporting events. Other than that, real estate projects are the one progressively more attracts worlwide attention. Uncertainly, Dubai's five-year property success have benn so far widen the mark, despite of prediction of the forthcoming end. Nevertheless, questions lingers about when and how the sector's tear down growth will control in. On the record, oil prices, high local inflation and large invasion of expatriates joined to produce almost 19% increase in residential property prices last year, thriving above market potentials. Also, who raced ahead is the commercial property, with the rents by up to 40% as reported. All of these, together with the weakness of the local currency, the UEA dirham, rich investors have been attracted and from around the globe in hunt of bigger returns.
The strength of the pound has made the UK one of the strongest markets for property in the emirate, as evidenced by the increasing number of exhibitions held in cities throughout Britain. There are, however, some formidable forces weighing against a continued explosion in Dubai property. Some observers have cautioned that new laws governing the financing of developments will dampen the mood, while others fear that the breakneck pace of building will eventually tip the market into a state of over-supply. More immediate concerns include spiralling construction costs, as well as tighter lending conditions for developers in the wake of the global credit crunch.
A recent report from EFG-Hermes saw the Arabian investment bank abandon previous predictions of a decline in Dubai property value in 2008, with growth of between 5% and 10% now expected. However, the highly regarded report still forecasts an overall drop of 15% to 20% between 2009 and 2011. Others are less pessimistic. Banking giant HSBC has said that it doesn't expect supply to catch up with demand until 2015. As a result, it believes present double-figure yields are sustainable throughout that period. Those latter figures are the ones quoted by Russell, a property investor who has been based in Dubai for a decade.
As the chief executive of Caledonian Investments (Gulf), he remains convinced of the region's potential. "Last year there was a wee bit of doom and gloom about Dubai, but a lot of that has now lifted," Russell says. "Dubai has picked up momentum, and there are a number of reasons for that." Despite the boom of the last few years, Russell points out that residential and commercial prices are still on average just 60% of those in other international cities such as Hong Kong, Singapore, New York, London or Paris. He also notes that the fledgling market is now maturing, a process that is taking out some of the irregularities and difficulties of previous years. This was most recently manifested by the introduction in July 2007 of laws mandating escrow accounts – an intermediary account – for developers. Russell said these laws, designed to prevent rogue developers from using buyers' money on unrelated projects, could take out as many as a quarter of those previously operating in the market.
While this has the obvious benefit of increasing overall confidence in the sector, it will also slow down the release of new properties in a market already notorious for over-optimistic timetables and resulting delays. "From a genuine, bona-fide developer's view, we welcome (the escrow laws]." Born in Bathgate and schooled in Edinburgh, Russell established his first property partnership, RD Investments, in 1984 in Edinburgh. During a restructuring in 1997, he moved the business to Dubai for tax purposes, taking his family with him. Once there, he began making personal investments in the local property market. This evolved to include family and friends in a sort of informal club that was the forerunner to the establishment of Caledonian in 2001. During those early years, Russell also purchased a plot for a home on Palm Jumeirah, the largest man-made island in the world.
Construction of his home on the palm tree-shaped island, which can be seen from space, was recently completed after some six years of work. Russell is now waiting for final certificates to be issued on the property, after which he will count a number of international celebrities such as footballer David Beckham among his neighbours. Russell, who is in Scotland to promote Caledonian's newly-launched income fund, said his latest vehicle would focus on more affordable properties rather than the luxury market. This could include stocks of apartments in Palm Jumeirah, but would also cover other mid-market housing, industrial, tourism and office space. "One of our target market areas is providing affordable housing and serviced accommodation for tourists on a budget," he says. Caledonian's development fund, which has provided developers in Dubai with financing for the past six years, has achieved annual returns of more than 30% per annum since its inception. Russell believes similar sorts of returns can be achieved from the income fund, which will mainly rely upon rental income from the properties it invests in. "Much of the recent focus for developers in Dubai and the Gulf region has been on five-star hotel and leisure accommodation," the 54-year-old says.
"We recognised the considerable untapped potential outwith that sector and our investment strategy is focused around essential infrastructure development opportunities in the region."
He expects Caledonian to benefit from its link-up with Al Mazaya Holdings, the Kuwait-based regional property developer. Caledonian raises money from high-wealth individuals in the UK which is then matched by Kuwait and Dubai-listed Al Mazaya and channelled through a local vehicle called Al Madar Gulf. Russell says this association helped Caledonian limit the impact of surging construction costs, which have seen the price of critical steel re-bar jump by 30% during the past two months.
"With the help of our partners, it is not a major problem for us," he said. "As a listed company, Al Mazaya have a lot of buying power."
