Asset quality key in attracting UAE real estate investments – expert
Technology is an underserved sector in the Middle East region, says Janardan Dalmia, a former investment banker, who started Starfish Holdings International Ltd to pursue his entrepreneurial interests, while talking to AMEinfo.
Given the low oil prices, which are the non-oil segments where you see opportunities and maximum growth?
To determine which segments are poised to experience maximum growth, one needs to look at where the money continues to flow despite the weak economy. I would bet on asset-light business models, sticky and defensive businesses (e.g., education, healthcare, and low cost retailers), low cost service providers, and technology companies.
For example, due to the large number of expatriates in the region (particularly GCC), a strong desire has been expressed by parents for higher quality schools, which has resulted in higher household spending on education. People generally do not compromise on their children’s education till absolutely necessary. Similarly, people do not want to compromise on healthcare.
People tend to reduce their discretionary spending first. For example, they move towards less expensive service providers and shop at a low-cost retailers and more reasonably priced grocery stores. During a downturn, consumers often delay automobile purchases, and they might delay building or buying a new house. Out of a biological need for sustenance, however, they make sure to keep food on the table and prioritize spending on must-haves.
I feel technology is an underserved sector in the region. The tech ecosystem is now developing rapidly in the UAE and the Middle East. A sizeable young, middle class demographic and strong internet and smart phone penetration in the region helps rapid adoption of technology. Catching onto the global trend represents a significant opportunity, and many companies are working to create different and innovative technology platforms to serve the market.
Real estate sector in the region, the UAE in particular, is bracing itself for another crash if figures are true. How do you assess the situation in terms of investment opportunities and challenges?
Following the rapid increase of prices from 2011 to 2014 after the steep decline from 2008 to 2010, the market has significantly slowed down again. I view the UAE market differently than other parts of the world. The prime locations in the UAE are always attractive to expatriates and international investors due to asset quality and the lifestyle these locations offer. It is almost as if Dubai is the best city of India for Indians or the best of Pakistan for Pakistanis – and this could be said for others as well within short flying distance.
From an investment standpoint, there are different ways to look at this sector. Some people are anxious with the amount of supply and the uncertain economic situation. People are sensitive: the memory of the 2009 crash is still fresh, and so some people view the real estate sector differently.
From a longer term perspective, I view the UAE real estate market as an attractive investment destination, and when compared to India where I grew up, the prime real estate locations in Dubai provide real value in terms of asset quality, infrastructure, and lifestyle.
Setting aside capital appreciation (which, for example, is not happening in India or the UAE at the moment due to the slowdown in the real estate market), with higher borrowing costs and very low yields in India, real estate in the UAE is an attractive investment proposition due to lower borrowing costs and higher yields for far superior asset value.
Prices might decline a bit further, but it is always hard to call the peak or the bottom.
Clearly, with the impact on their own nations’ economies and currency depreciation, international investors have had a difficult time maintaining extra liquidity – and this is coupled with their uncertainty to invest in the region. But I still believe that a good location and a good development would stand the test of time here in the UAE, and in the long run, such an investment would come out as a winner. I wish I had a crystal ball to predict this, though.
Largely volatile equity markets worldwide, especially the ones in the Middle East region, continue to knock down the banks’ revenues from securities divisions. Where are they taking us to?
Fluctuating oil prices along with an uncertain economic outlook is causing volatility in the equity markets. Any small sign of negative news makes investors anxious, and they look for the exit door. I think this will continue for a while this year till things stabilize. Some of the usual arguments against a stable regional and international investor base for the region is an evolving regulatory environment, geopolitical risk, corporate governance, and transparency.