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Property: Consolidation Wave Seen Rising
DUBAI — A trend of real estate industry consolidation is building in the UAE and other GCC countries, to the benefit of long-term investors and respective national economies, a repected international consulting firm said on Wednesday.
Most property markets in the Gulf suffer from significant oversupply. With developers, lenders and owners under financial pressure, past experience in other parts of the world suggests that mergers and acquisitions in the regional real estate business should become more common, executives at AT Kearney said.
Successful mergers can help Middle East property firms gain critical mass, a sharper competitive edge and better access to credit than many of their international competitors, the executives said. “With most property developers being cash-strapped, with banks restricting lending and homebuyers defaulting on payments, the primary aim of consolidation is to pool resources to enable firms survive the downturn,” said Dr. Dirk Buchta, Partner and Managing Director of AT Kearney Middle East. Emaar Properties and and Dubai Holding have already announced plans to merge. Five units within Dubai Holding are also combining — Dubai Properties, Sama Dubai, Bawadi, Remraam and the Tiger Woods golf course. In Qatar, Barwa and Qatar Real Estate Investment Co. plan a union, and land from distressed developers is being folded into companies such as the state-owned Dubai Real Estate Corporation, the executives said.
“While consolidation will help to move the market from short-term speculation to long-term investment culture, all three entities — developers, contractors and end-users — will benefit from mergers,” said Olivier Laroche, Senior Manager at AT Kearney Middle East. With fewer and bigger companies competing in the business, developers would have greater control of supply and costs, while contractors would have more stable clients, thereby reducing the risk of default. End-users would be more likely to gain access to their units and have better transparency about available offerings, Laroche said. In previous bull markets, the number of developers increased as a result of pent-up demand for property and an increased number of speculative investors. In today’s market, however, the focus is on quality and end-users’ requirements, with the disappearance of speculators.
“We expect most of the demand in the future to come from end users rather than property flippers,” said Ahmad Saidali, a property consultant at real estate services firm CB Richard Ellis Ltd. “In today’s market, what we lack is confidence. The process of creating big and strong development companies is a part of the answer to this lack of confidence.” — abdulbasit@khaleejtimes.com
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