IP GLobal said that Dubai's property market does not fit its investment criteria at the moment. Pawan Singh / The National
IP GLobal said that Dubai's property market does not fit its investment criteria at the moment. Pawan Singh / The National

Business

IP Global staying out of Dubai property market

A leading property investment company has decided not to take advantage of the resurgence in Dubai's property market.

Tom Arnold

August 05, 2013

A leading property investment company has opted not to invest in the resurgence in Dubai's property market, citing the risk of fresh volatility.

IP Global manages more than US$1 billion of property assets owned by the company and clients in London, New York, Chicago, parts of Asia and South America.

But the company, which is active in more than 19 markets, says Dubai's property market does not fit its investment criteria at present.

"What we're seeing is a massive upturn in demand for Dubai properties, especially the villas," said Paul Preston, the Dubai-based director and head of IP Global Middle East. "But as a market we don't like markets that shoot up 20 per cent one year and drop 40 per cent the next. We have to make sure the markets we operate in are sustainable and markets that will make our clients money."

Prices in the emirate's property market are rapidly bouncing back from the lows they sunk to during the global financial crisis. The property agent Knight Frank estimates prime property prices in the city grew by 18.9 per cent in the six months to March - the fastest over that period in the world and the third-fastest over the entire year.

But despite an upturn in confidence in the market some are urging caution. Harald Finger, the IMF's mission chief to the UAE, said last week there was a risk of a "new bubble forming" if price rises continued at their present pace.

IP Global's Mr Preston has similar anxieties.

"We're not active in Dubai. We don't have any projects here. We never have done," he said. "Hopefully, in the future we may look at it but our business invests in markets where there's a limited supply and a strong demand. And in Dubai the potential to keep building for the next 100 years is definitely there, so we have to be very careful."

Mr Preston said financial institutions' lending practices to foreign investors was another reason why IP Global was currently shying away from Dubai, claiming there had been cases in which interest rates for property investors had risen dramatically after the first two years.

About 70 per cent of the company's business from clients in the region was invested in London's property market.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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