The UAE's Northern Lights

Published in Forbes Middle East, 24 October 2016

There is a slowdown afoot in the northern emirates. According to real estate agency Cluttons, rents in Sharjah in the first quarter of this year were down by more than 8% year-on-year. That followed a 2.4% fall in the 12 months to December 2015. The drop at the start of this year was steepest in villa rental prices, which are down 9.6% over the past 12 months, while apartment rents fell by 7.7% over the same period. The real estate firm expects rental costs to drop a further 3-5% over the course of this year.

Yet, despite this weak outlook, significant new developments are still going ahead, both in Sharjah and beyond. In fact, some of the most ambitious real estate schemes the northern emirates have ever seen are currently being pursued.

In Umm al Quwain, Dubai-based Sobha Group is developing the Firdous Sobha scheme, a mixed-use island development that will have villas, apartments, hotels, shops and leisure facilities with a total value of around $6.8 billion. The scheme was announced in late April and will cover 4.9 square km.

Further north, in Ras al Khaimah, there are two major schemes underway. Al Marjan Island, a man-made archipelago stretching 4.5km out to sea, will be home to more than 20 hotels and resorts with the capacity to host up to 20,000 guests once completed, including properties from Anantara, Crowne Plaza and Marriott.

Elsewhere in the emirate, the local Al-Hamra Real Estate Development is working on its $272 million Falcon Island project, which will contain 150 villas and a marina on an island divided in two by a central canal. The larger Al Hamra Village scheme, which the island is part of, covers 77 million square feet and includes more than 1,000 villas and townhouses and nearly 2,500 apartments as well as five hotels, a golf course and a shopping mall.

Meanwhile, in Sharjah itself new developments are also under construction, such as the $654 million Tilal City gated residential scheme, which is open to foreign buyers and will be house up to 65,000 residents once complete. The project is being developed by Tilal Properties, a joint venture between Sharjah Asset Management and Eskan Real Estate Developments. The first plots of land are due to be handed over before the end of this year, with a second phase of plots to be handed over in December 2017.

Collectively, these projects add up to a big bet on the future potential of the northern emirates. Overall, there are more than $6.5 billion worth of construction projects planned or underway in the five northern emirates and a further $1.8 billion worth of hospitality projects, according to Dubai-based MEED Projects, which tracks such activity around the region.

The motivation for many of the larger schemes is a desire to inject some life into the local commercial and tourism industries by attracting more outside investment. The individual emirates themselves are certainly not large enough to support these developments on their own. The latest census for Ras al Khaimah, for example, which was carried out in 2015, showed it had a population of 345,000 people, almost 100,000 lower than previous estimates. Credit ratings agency Fitch Ratings noted in a report released in early May that “Hotel capacity is set to increase 50% over the next three years and a key challenge will be to develop Ras al Khaimah as a destination to capitalise on the planned new capacity.”

Tourism is a key element for the residential units being built as well. Given the distance from the main cities and the small size of the local economies, many potential buyers will be the sort of people who look to the northern emirates as a leisure destination rather than a place to live and work full-time. “People are going to the northern emirates, but more for holidays or weekends away from Dubai or Abu Dhabi,” says Suzanne Eveleigh, head of Sharjah at Cluttons. “People aren’t buying in terms of moving and living there, they’re buying property as a holiday home.”

The northern emirates do have some factors in their favour as they try to attract international money and visitors. In particular, the relatively low cost of property compared to the big cities of Dubai and Abu Dhabi is one element that they can exploit. Sharjah is well placed in this regard, being closest to the bigger cities and having long acted as a dormitory town for Dubai. The price differential is certainly large at the moment. A three-bedroom villa in Sharjah costs around $24,500 a year to rent, compared to anywhere between $32,600 and $92,500 in Dubai, according to Cluttons.

The other emirates further north also have an eye on the potential and are keen to stress how simple the process of buying property can be. “It’s very easy for foreigners to buy property in Ras al Khaimah. It’s become quite attractive because the price of property is a lot lower than comparable properties in Dubai or the other emirates,” says Haitham Mattar, chief executive officer of the Ras al Khaimah Tourism Development Authority. “You can still buy a property that is on the beach front or sea-facing at a fraction of the price that you’d pay in the other emirates.”

Mattar says that the two key source markets for those buying in Ras al Khaimah are the U.K. and Asia. For some of these buyers it’s simply a matter of investment, with the property being rented out thereafter, but others are more interested in buying a relatively cheap holiday home.

Yet alongside all these grand schemes, there is also a shortage of affordable housing for local buyers, many of whom cannot afford the prices attached to villas and apartments in the new high-end developments. In late February, Sheikh Mohammed bin Rashid al Maktoum, vice-president and prime minister of the U.A.E., visited the east coast of the country and approved $1.9 billion worth of infrastructure projects being planned by the Ministry of Infrastructure Development. The schemes will be developed across the northern emirates and include a substantial investment in housing. Some $1.3 billion of the total will be put into 12 compounds over the coming five years, providing homes for 42,000 people.

“Housing is an essential service and is every citizen’s right and a priority for the government,” he said at the time. These days it’s also a priority for a lot of developers in the northern emirates, even if they are targeting a different set of buyers.

UAE Real Estate: A Buyers’ Market

Published in Forbes Middle East, 23 October 2016

The real estate developers were putting a brave face on it, saying they had been remarkably busy, but there was no hiding the fact that the Dubai Property Show in London in mid-May was both small and, at least on the first day of the show on Friday afternoon, sparsely attended. Around a dozen developers including Dubap Properties, Tebyan Real Estate Development and Binghatti Developers filled part of the Olympia West exhibition hall, which was dominated by a Nakheel stand in the centre.

It was certainly a far cry from the likes of the Cityscape show in Dubai, but that’s perhaps to be expected. London is after all a long way from the U.A.E., and the gloss has come off Dubai’s real estate scene of late. Prices are down by 15% from their mid-2014 peak and confidence is low in the light of the oil price slump.

In addition, the rise of the U.A.E dirham (and other Gulf currencies pegged to the dollar) means that inward investment into the region is becoming more expensive for a lot of po­tential buyers. And while expat residents in the Gulf who are earning money in the local currency are not affected, the re­gional economic slowdown also means that some of them are losing their jobs, selling up and leaving the country.

Craig Plumb, head of research at estate agency Jones Lang LaSalle (JLL), says the rising value of the dirham has “definite­ly been a factor” for international investors in the residential market. “The volume of residential sales in Dubai over the first half of 2016 is down by around 30% compared to the same period last year,” he says.

But such trends do not mean the whole system is about to come crashing down. In broad terms, the market for cross-bor­der real estate investment continues to be fairly vibrant, even if these days the bulk of the deals involve Gulf investors putting their money in international markets, rather than overseas buyers picking up properties within the region. Plumb says Middle East investors bought almost $9.5 billion of real estate outside the region in the second quarter of this year, compared to $2.3 billion of capital flowing into the region.

“There has been a shift in the nature of [outbound] invest­ments, with private investors becoming relatively more impor­tant compared to the major sovereign wealth funds,” he adds. “But the desire to invest in real estate assets outside the region remains.”

This trend has been developing for a couple of years. According to CBRE, another real estate consultancy, a total of $14.1 billion of investment flowed from the Gulf to other parts of the world in 2014, with Qatar leading the way with $4.9 billion of purchases, followed by Saudi Arabia ($2.3 billion) and the U.A.E. ($1.6 billion). The total was down on the $16.3 billion a year before but it still made the Gulf the third largest source of capital in the world after North America ($66.5 bil­lion) and Asia ($28 billion).

While much of the outward investment has historically been done by sovereign wealth funds, in the wake of lower oil prices they have been drawing down some assets to help plug their government’s budget deficits. That leaves them with less to invest. However, that trend is being partly balanced by the fact that rich individuals are showing more inclination to in­vest overseas. CBRE predicts that while sovereign wealth fund investments in global real estate will fall from $9-11 billion a year to around $7-9 billion a year going forward, non-institu­tional investments from the Middle East will rise to an annual figure of $6-7 billion, up from an average of around $3 billion in 2010-2013.

London has long been the most enticing market for Middle East investors and it still holds the top spot, but it is not as dominant as it once was. In 2014, the U.K. capital city accounted for 32% of all outbound investment, compared to 45% in 2013. Other large Western cities followed it in popular­ity, including Paris ($2.2 billion), New York ($1.3 billion) and Washington ($481 million).

More recent events have altered the landscape, in particu­lar the vote by the U.K. in June this year to leave the European Union. That is pushing investors to re-evaluate their position. A recent survey by financial advisory firm DeVere Group found that 69% of its clients, including some in the U.A.E. and Qatar, intended to decrease their investment exposure to the U.K. following the Brexit vote.

“High net worth investors are overwhelmingly consider­ing rebalancing and diversifying their portfolios following the U.K.’s decision to leave the EU,” says Nigel Green, chief executive officer of the firm. “These investors are seeking to reduce their exposure to U.K.-based assets in the wake of the impending Brexit.”

Nonetheless, the motivation to invest in overseas markets still remains strong, whether because investors want to diver­sify their portfolios away from their home market and from dollar-denominated (or dollar-pegged) assets, or simply a de­sire to buy a residence for themselves or family members in overseas cities.

That helps to explain the results of another survey released earlier this year by property consultancy Cluttons, which found that 61% of high-net-worth individuals (HNWIs) in the GCC were likely to invest in their preferred location in 2016, against 25% who said they were unlikely to (the remaining 14% said they weren’t sure). Of those, London was the preferred city for 13% of investors, followed by New York and Bangalore in India. Half of these investors were targeting residential prop­erty, while 22% favored commercial property and 28% were looking for a mixture of both.

They are not just investing in distant lands though. Just over half (53%) of HNWIs in the U.A.E. told Cluttons that Middle East locations were among their top three investment targets for the year ahead. Dubai and Abu Dhabi were, perhaps unsurprisingly, the most popular, cited by 30% and 23% of re­spondents respectively. They were followed by Sharjah (8%), Muscat, Kuwait City, Doha and Riyadh. The reasons for the U.A.E. cities’ popularity stem from the country’s role as both a trading hub for the region and also—particularly in the case of Dubai—its position as a safe haven.

That too has been one of the long-term attractions of London. And although the political uncertainty caused by Brexit has unnerved some investors and led them to postpone or cancel some deals, demand is expected to recover before long. For one thing, the rise of the U.A.E. dirham and other Gulf currencies pegged to the dollar over the past few years means that it is now far cheaper for Gulf investors to buy U.K. property than it was previously, all the more so following the slump in the value of the pound after the Brexit vote.

As a result, many real estate agents say they are expecting interest in London to recover in the second half of the year.

“One of the key things of benefit to buyers from the Gulf is the fact that the majority of them, except for Kuwait, maintain a fixed exchange rate with the U.S. dollar. That means they’re effectively purchasing in dollars, so for them London property became 12% cheaper overnight on 23 June [the date of the ref­erendum],” says Faisal Durrani, head of research at Cluttons. “Since the referendum, some of our offices in locations like Belgravia and Chelsea have reported an upturn in interest from buyers from the Gulf.”

Whether the investments follow remains to be seen but, for everyone involved, the ups and downs of recent years in Dubai and London alike is at least a useful reminder of the inherent volatility in real estate investment no matter where you are in the world.

Securities lending in the UAE: the race is on

Published in Global Investor, 27 September 2016

In early August last year, the National Bank of Abu Dhabi (NBAD) became the first institution in the UAE to be handed a licence to carry out securities lending and borrowing activities within the country’s capital markets. The Securities and Commodities Authority (SCA), the regulator that granted the approval, stated at the time that the move would offer several benefits, including helping to bolster the local securities industry, increasing the market’s depth and encouraging more investment in the capital markets from both local and foreign institutions.

Under the system, clients temporarily transfer ownership of their securities to a borrower that can then use the shares in its market making activities. Collateral is posted to the lender, either in the form of a cash guarantee or a bank guarantee or by using other securities. The lender in turn has the chance to earn revenues from the use of their shares. The borrower is obliged to return the securities to the owner at an agreed date in the future or on demand, depending on what is agreed.

The lending of securities is a common activity in many parts of the world, including Europe, Asia and the Americas, but it is still rare in the Middle East region. It has not happened quickly in the UAE and although it is nearly a year since the first licence was granted, the process is still not quite complete. 

The SCA board first set out its conditions and requirements for potential licence holders in August 2012, with decision no. 47 “concerning the regulations as to lending and borrowing securities”. The country’s main stock market, the Dubai Financial Market (DFM), approved the practice in January 2014 and the Abu Dhabi Securities Market (ADX) followed a few months later in May. Maryam Fekri, chief operating officer of the DFM, described the move as “an important development for the market… diversifying the range of products to be offered and increasing the UAE’s attractiveness for investments.” 

However, it is still a work in progress. NBAD has still not yet launched the product in the market and it is keen to keep expectations in check about what sort of an impact it might have, in the short term at least.

“Eventually, this will be a product which increases the liquidity and the depth of the market and will unlock additional value in the long equity positions of many of our institutional investors, but we are just getting started,” says Jonathan Titone, executive director and head of product development at the bank. “There have been a few setbacks in our journey, and it has taken a bit longer than we had hoped to start the lending and borrowing activity, but we are working very closely with the markets to launch this and they are nearly ready.”

Restrictions remain

One critical factor that he points out is likely to limit the take-up of the product in the months following any launch is the ongoing restrictions on short-selling of stocks in the UAE.

“Market makers are currently the only investors to have any demand to borrow as they are the only investors that are allowed to short sell in the market,” he says. “Other investors face preverification requirements by the stock exchanges whereby securities must be available in their account prior to trade execution. If the shares are not available, the trade cannot be executed. So other than short selling through market making, there is little demand or purpose to borrow shares. Because of this, we must manage expectations in terms of the limited demand and initial financial returns.”

NBAD says it has received positive interest from potential clients who are keen to explore ways to turn their longterm holdings into another source of revenue. In the longer term, the process could prove to be a handy way for some investors to hedge their positions. Other market participants say that it could also play a useful role in paving the way for other innovations in the future and to support other products. 

“The implementation of securities lending and borrowing is an important development for the market because it diversifies the range of products that are up for offer,” says Mihir Kapadia, CEO and founder of Sun Global Investments, a wealth management company with offices in Dubai, London and Mumbai. “It is a key piece of market infrastructure for the development of other market products such as exchange traded funds.”

However, there are some reasons to doubt whether the product will prove quite as popular as it has in some other, more mature markets, given the nature of the region’s shareholders. In particular, some observers say there are many firms in the UAE that have no interest in doing anything with their shares other than holding on to them. It is likely to take some time to educate such investors and persuade them of the benefits of lending their shares.

“You have some clients that have large positions in firms and they may be interested, but for the most part the investor base that own the more established publicly-listed institutions don’t want to do anything with those shares outside of just hold them for dividend payments,” says one Dubai-based executive.

Instead, if the authorities want to improve liquidity in the market, they may be better off focusing on opening up the market to international investors. That has been gradually happening, encouraged by the MSCI upgrade in May 2014, when the UAE was included in the firm’s emerging markets index. 

In June last year, the UAE federal government decided to lift its ban on non-UAE investors owning shares in local telecoms giant Etisalat. The change went ahead in mid-September, with a 20% ceiling on foreign ownership. Rival telecoms outfit Emirates Integrated Telecommunications Company (Du) has been touted to follow suit by investment bank Arqaam Capital.

Predicted demand

The fact that no other licences have yet been awarded for securities lending and borrowing suggests that other institutions are at best cautious about the potential for this product. Nonetheless, Titone appears confident that there will be plenty of demand from clients wanting to lend their shares and that, in time, others will want to follow NBAD into the market. That optimism stems in part from the fact that the regulator is expected to loosen the restrictions on short-selling in the future. Whether that transpires is still a moot point, but there is optimism in the industry.

“There is strong interest on the client side to lend their shares,” says Titone. “We expect other market makers to enter the market soon, and the regulator and markets are also planning to introduce short selling for investors, other than market makers, in the near term. Once this is possible, demand will increase exponentially, and we expect even more competition to enter the market. We believe there will be significant demand in the medium term."

Furthermore, says Titone, there are large institutional investors holding large blocks of very attractive securities. “These investors have no intention to sell the positions any time in the near future, and these positions can be used to generate additional yield.”

The idea of securities lending and borrowing should receive a further boost early next year from another development in the region. In early May this year, the Capital Market Authority (CMA) in Saudi Arabia announced that it will soon permit the practice for trades on the Saudi Stock Exchange (Tadawul). It is due to issue the necessary regulations during the first half of 2017. What happens in the kingdom, the Middle East’s largest economy, invariably affects other Gulf states. 

Securities lending has been a long time to arrive in these countries, but once the product is available in the market it ought to find a loyal and growing following. The race is on. 

Outbound travel takes off in the UAE

Published in Gulf News, 20 April 2016

Whether it’s Riyadh or Rome, UAE residents are spending more when they’re abroad and this opens up opportunities for banks catering to their wanderlust.

When economic conditions worsen it’s natural for people to cut back on spending, and travel is often among the areas first affected. That doesn’t seem to be the case in the UAE though. The nature of the country’s population, with its overwhelming majority of expatriates, means it doesn’t react like most markets. These days, demand for travel is still on the rise.

Nikola Kosutic, Research Manager at Euromonitor International, says the number of outbound trips from the UAE increased by 5 per cent to 3.5 million last year, with those travellers spending Dh71 billion, up 10 per cent on 2014. “UAE residents travelled for longer and spent more in 2015.” 

The trend appears to be continuing this year. Industry executives say bookings can dip because of events such as the recent terrorist attacks in Brussels but the pipeline remains healthy. “We did see a small drop in bookings over Easter, primarily linked to the terrorism incidents in Belgium, but we are seeing a lot of leisure enquiries and bookings,” explains Premjit Bangara, General Manager for Travel at Dubai-based Sharaf Travel Services.

Key markets

Indeed, the World Travel and Tourism Council forecasts that outbound travel spending will continue to growing in the coming years, reaching Dh157 billion by 2025.

The most important market for UAE travellers is Saudi Arabia, which accounts for 39 per cent of all trips, says Kosutic. After that comes the UK with 7 per cent. Other key markets include Asian destinations such as Thailand, Malaysia and India, European countries including France, Germany and Switzerland, as well as the US and Australia. 

The tastes of UAE residents are broadening, however, not least because of the growing range of destinations served by Emirates, Etihad and Fly Dubai. Bangara says his firm has seen a rise in interest in European destinations such as Croatia and Georgia, and South American countries such as Argentina and Peru.

However, there are some contradictory trends at play. Low oil prices and weak economic growth are denting confidence locally, but the strong US dollar — to which the UAE dirham is pegged — means some destinations are now less expensive than they were in the past.

“There have been a series of macroeconomic events over the past few years that impacted the UAE travel sector, but the overall effect has been positive, mainly due to the strong dollar,” says Kosutic. “We saw a 19 per cent increase in outbound trips to Europe in 2013-15.”

However, some of those same trends are hurting inbound tourism. In 2015, the UAE received 20 million international visitors, with 14 million of them going to Dubai. Together they spent Dh54 million, with Saudi Arabia, India and the UK the three leading source markets, according to Euromonitor.

Some markets are having a tough time, though. Russia has been hit by international sanctions, low oil prices and a weakening of the rouble. That has led to a decline in its tourists coming to the UAE. Other European countries have been struggling with anaemic economic growth, although heavy promotion of the UAE as a holiday destination and the expansion of visa-on-arrival services to more nationalities means arrival numbers have remained robust.

Hit the right targets

At a time when the UAE is trying hard to diversify its economy, it’s important that it identifies what countries represent the best prospects. “We continue to see year-on-year growth in passenger numbers,” says Ahmad Al Haddabi, Chief Operations Officer at Abu Dhabi Airports, referring to traffic during February. “Traffic between India, the UK, Thailand, Australia, the US and a number of others all witnessed increased passenger figures.”

When people are travelling, one increasingly popular option is to take prepaid travel cards with them. Money can be placed onto these in advance and then used to pay for goods and services when abroad, or to withdraw cash from ATMs, much like a regular bank card. A single card can hold several currencies.

One advantage is it removes any concern about shifting exchange rates, as the rate is locked in at the point when the money is loaded onto the card. Usage charges are also fixed and, as the cards are based on chip-and-PIN technology, it is safer than carrying cash.

These cards are issued by banks and many currency exchange houses. It is still relatively early days though. There were 190,000 prepaid travel cards in circulation in the UAE last year, according to Euromonitor. That means only a small fraction of travellers used them.

“This certainly is a growing trend as the world moves to cashless transactions,” says Bangara. “With more aggressive marketing from companies we will see stronger adoption rates in the coming months.”

It’s not the only option that banks offer to travelling customers. Some also offer credit cards that are tailored to appeal to those going abroad. For example, Abu Dhabi Islamic Bank has its Rotana Rewards card, which offers discounts for hotel and restaurant bookings and access to airport lounges and it has a card linked to Etihad’s loyalty programme. Emirates NBD has something similar with Emirates. 

Such cards can help banks generate more fee income: something that is much needed in the current economic environment. The continued growth of the travel market means it ought to be a reliable area of growth for years to come — whether or not the wider economy rebounds quickly.

Remittances steady despite market volatility

Published in Gulf News, 7 March 2016

Remittances are a necessity rather than a luxury for many expats, a fact which is cushioning the sector from the economic slowdown

Every year billions of dollars flow out of the UAE as expat workers send money home. They may be supporting family members or perhaps buying a property to return to, but whatever the reasons, the amount has been growing quickly. In 2010, the figure crossed the $10 billion (Dh36.7 billion) barrier for the first time, according to the World Bank; by 2013 it had nearly doubled to almost $18 billion. 

But the years of heady growth have ended. Low oil prices, a slowing economy and cuts to major project spending are denting confidence and job security among expat workers. The value of remittances was nearly flat in 2014 at $19 billion and, while there doesn’t appear to have been any reduction, some are forecasting a drop in the amount of money being sent abroad this year.

“In 2015, we observed almost no effect on remittances flow in the UAE compared to previous years,” says Diana Jarmalaite, Analyst at research firm Euromonitor International. However, she adds that “2016 is expected to be a less favourable year, mainly because of the ripple effect that comes from the low prices for oil. We would expect the remittance market to decline at around 2-3 per cent.”

Of the money that leaves the UAE, the largest proportion by far goes to India, with 43 per cent of the total in 2014, according to the World Bank. Other major destinations are Pakistan, the Philippines and Bangladesh, which between them account for 35 per cent.

Some of these workers have been reaping a mini-windfall over recent years, as their home currencies have weakened against the US dollar, which the dirham is pegged to. In May 2014, for example, one dollar bought less than 60 Indian rupees, but today it buys almost 70 rupees (About Dh3.7). There have been similar moves with the Philippine peso, Pakistani rupee, Indonesian rupiah and Malaysian ringgit.

“In the UAE, 90 per cent of the population consists of expatriates, dominated by those from Asian countries whose currencies have depreciated against the US dollar,” says Promoth Manghat, CEO of UAE Exchange. “Since the dirham is pegged to the dollar, these factors work in favour of the expatriates, who get to send more money home.”

Indian and Filipino expats in the UAE stand to reap the biggest remittance returns this year, as their home currencies hit new lows against the dirham. The peso surpassed the 13 to Dh1 level for the first time in six years in the last week of January, and the Indian rupee has been on a downward trend against the dirham.

The competitive nature of the market in the UAE also helps expats. The market is contested by banks and specialist money transfer operators, but it is the latter that dominate. “The remittance market is mainly shaped by the big share of population who do not have access to actual banking services,” says Jarmalaite.

Competition between the different players means that the cost of sending money abroad is often relatively low, at 2-4 per cent — the global average is about 7.4 per cent.

These twin trends of low costs and depreciating currencies are a boon to expats but, on the flip side, workers are also having to consider what might happen as a result of the weakening macroeconomic climate. If job losses mount and expat numbers dwindle, the remittance industry will also be affected. For now, most industry executives appear confident. As many point out, sending money home is a necessity rather than an option for many expats.

“Despite indications of softening in certain sectors, especially those affected by lower oil prices, we predict that the impact will be somewhat limited on the remittance industry,” says Rashid Al Ansari, General Manager of Al Ansari Exchange. “The majority of remitters residing in the UAE have dependents back home who rely on regular money being sent.”

A recent World Bank report recently warned that if lower oil prices persisted and economic activity in the GCC declines, then “outward remittances from these countries may eventually decline. Despite the concerns, industry experts don’t seem overly worried. “We believe the long-term prospects for money transfers are strong as people continue to move out of their home countries in search of better economic opportunities,” says Hatem Sleiman, Regional Vice-President for the Middle East at Western Union. 

Over the past 10 years, the population of the UAE has more than doubled from 4 million to 9.5 million, which has triggered a strong growth in expats sending money home. 

London property dispute draws in Kuwaiti sheikhas and UAE real estate giant

Published in Gulf States News, 12 November 2015

A complex legal dispute over a property deal in central London could be heading to mediation or a future trial.

Another complex dispute over property involving wellheeled Gulfis has come to the High Court of Justice in London, where Sheikha Hind Bint Salim Hamud Al- Jaber Al-Sabah and two other claimants are pursuing a legal action involving six defendants, including the Kuwaiti royal’s sister Sheikha Salem Hamud Al-Jaber Al-Sabah and Iraqi- Emirati businessman Hussain Sajwani, chairman of UAE-based developer Damac Properties.

The sheikhas’ father was Sheikh Salim Hamud Al-Sabah, described in court documents as a high-ranking professional soldier who was head of the Emiri Guard for 25 years. A grandson of Emir Sheikh Jaber I (who ruled from 1915 to 1917), Sheikh Salim died on 10 June 2003 without leaving a will; he left 15 heirs, including the two sisters. His estate included two adjoining flats, numbers 61 and 62, at 3-8 Porchester Gate, on the north side of Hyde Park in central London. The two flats had been converted into a single property and were registered in the names of two Gibraltar companies, Rosork Holdings and Fairlann Trading.

In June 2009, the combined property was bought for a documented price of £1.9m ($2.9m today) by British Virgin Islands-incorporated Gulf Heritage Properties Company Ltd, controlled by Sajwani. The transaction was arranged by agent Tareq Al Baho, a Kuwaiti national. At the centre of the disputeare Sheikha Hind’s claims that the property was undervalued at £1.9m and that a ‘bribe’ was paid to secure the property at a below-market rate. She contends that the property’s true value is £2.5m-3m.

In the particulars of a claim submitted to the High Court in July, Sheikha Hind said that, on top of the £1.9m, further payment of “not less than £600,000” was paid by or on behalf of Sajwani to Al Baho or Andrew Pinnell, a solicitor appointed under a power of attorney in 2008 to represent 12 of the 15 heirs and Sheikh Salim’s estate. The £600,000 figure is based in part on a claim that Al Baho told Foxtons estate agency that the property had been sold for £2.5m – in other words £0.6m above the £1.9m figure. The property had been marketed through Foxtons for a time, although the sale was agreed separately.

Two other claimants in the proceedings, property agents Asad Meerza and Mohsen Mehra, claim they are owed a £300,000 commission from Al Baho and Sheikha Salem for their role in introducing Sajwani to Al Baho.

In their defence, Sajwani and Gulf Heritage say they paid £2.2m, comprising £1.9m for the property and an agent’s fee of £300,000; these sums were paid to the benefit of Rosork Holdings and Fairlann Trading. The £300,000 was paid via two bankers drafts made out in UAE dirhams. Gulf Heritage and Sajwani say no payment was made to anyone other than the two vendor companies and deny that the £300,000 constituted a ‘bribe’. They also deny that a sum of “not less than £600,000” was paid in connection with the property purchase.

In a further twist, Sheikha Hind claims that Al Baho obtained the £300,000 by lodging the two bankers drafts in accounts held by two ‘clone companies’ that he had set up in the UK and which had identical names to the two Gibraltar companies, Rosork Holdings Ltd and Fairlann Trading Ltd.

In a two-day hearing in the High Court’s chancery division, Justice Peter Smith noted that Al Baho had not served a defence nor filed any evidence. On 3 November, he made judgements that Sheikha Hind could claim a number of interim payments from Al Baho and BC Penthouse Ltd, a company wholly- or partly-owned by Al Baho, for the benefit of the estate.

According to the defence, substantial sums have been spent on the Porchester Gate property since the transaction went through, including £1.89m to renovate and extend it. The property is used by Sajwani as his personal residence when in London.

A lawyer for the three claimants, Matthew Jenkins at Hughmans Solicitors, told GSN that mediation efforts have been proposed and are due to take place before Christmas. If they do not go ahead, or prove unsuccessful, the matter is expected to proceed to trial in early 2017. A spokesman at FTI for Sajwani declined to comment on the proceedings. Lawyer Richard Barca at Wilson Barca, for Al Baho, Pinnell and Sheikha Salem, did not respond to a request for comment.

Dubai Adjusts to a Cooler Real Estate Market

Published in Bloomberg Businessweek, 5 October 2015

The real estate sector is accepting that lower prices may be here to stay

Almost all the main indicators are pointing in the wrong direction for Dubai’s property market these days. Over the past year the sale price of apartments has dropped by an average of 9 per cent and for villas by 5 per cent, according to Jones Lang LaSalle (JLL), a real estate agency. Prices are expected to continue their fall for the rest of this year. Rental values for villas have also been declining, albeit at a slower rate of 2 per cent, while apartment rents have shown a small rise of 1 per cent.

Many working in the real estate sector and beyond are questioning whether this represents the start of a sharp downturn or simply the usual market ebb and flow. Zainab Mohammed, CEO of property management and marketing at wasl Asset Management Group, says that Dubai’s property sector is in a much fitter state than it was prior to the property crash in 2008. “We are witnessing a correction,” he says. “However, the current situation is healthy. Dubai’s real estate market has matured and should be viewed in the overall context of the economic cycle.”

The downward pressure on real estate prices is likely to continue. Investment in Dubai property from foreign markets–particularly Russia and Europe–has slowed due to currency pressures. The slump in the price of oil is hurting demand from within the region also. The slowdown has “dented confidence and applied downward pressure on transaction levels and prices,” says Diaa Noufal, associate partner at real estate agency Knight Frank. “This has led to speculation that prices may soften further over the remainder of 2015 leading some buyers to adopt a watch and wait attitude.”

This is happening in the wake of tighter regulations introduced in late 2013, including a mortgage cap and an increase in transaction fees. These are having a bigger impact than low oil prices, according to Steven Morgan, CEO of Cluttons Middle East, a real estate agency. “What we’re seeing in the market is a general slowdown, which is natural as a result of the legislation and the supply coming on,” he says. “There is a possibility that if oil prices continue to be low there could be an impact on population growth and therefore house prices. You hear that oil companies are starting to downsize and aren’t recruiting, but we’ve yet to see that come through in the market.”

What has been seen is a fall in the volume and value of sales. The Dubai Land Department says the number of unit sales fell from 20,309 in the first half of 2014 to 16,107 in the first half of this year. The value of those sales dropped from 31.9 million dirhams ($8.7 million) to 25.3 million dirhams.

Some property firms are adjusting their strategies to take account of the slower market. Dana Salbak, research manager at JLL, says developers are being more realistic in terms of the scale and timing of their project launches, and some schemes have been delayed. “We see the residential market as subdued, with sale prices softening and rents stabilising as a result of the negative investor sentiment, but also because Dubai had become too expensive,” she says. “Both the government and developers have realised that.”

With many buyers unable to access the higher end of the market, affordable housing–a traditionally underserved area of the market–is seeing increased demand. “Developers are now catering more to middle-income earners who are increasingly putting down their roots in the region,” says Mohammed. “The character of the market has changed [to] one where property is being purchased primarily as a home and not just an investment.”

The shift is seeing some developers look for growth in new markets. Damac Properties, which specialises in high-end developments, is paying more attention to places like China, to supplement its usual markets in the rest of the GCC, India, Pakistan and the UK. “We explore and experiment with new markets all the time,” says CFO Adil Taqi.

Further help from foreign shores could come in the form of the easing of economic sanctions on Iran following its signing of a nuclear accord with world powers in July. Dubai has strong trade links with Iran and is likely to be the first port of call for Iranians looking to buy overseas. The emirate is also an ideal location for international companies looking to access the Iranian market to establish or expand operations. “I think Iran will be as important as any other country of its size and proximity,” says Taqi. “If and when it opens up in the short-term you might see some surge because of the pent-up demand, but that demand will be met very quickly.”

Further falls in the oil price and an injection of new properties onto the market could offset such a boost. JLL estimates an extra 19,000 residential units will be available next year. “There will be a strong level of supply in the market over the next 12 months, which will undoubtedly have an effect on transaction levels and possible further softening of prices,” says Noufal.

The downturn is still a long way from comparison with Dubai’s 2008 property crash. Lenders have not been spooked in the way they were then, according to Morgan from Cluttons Middle East. “In 2008 and 2009 the banks stopped lending,” he says. “That’s not happening now. There is a lot of competition, banks are liquid and they’re still keen to lend.”

Dubai pursues smart grids

Published in MEED, 24 August 2015

Some smart city ideas can seem futuristic and improbable, but the first steps are already being taken around the region in the prosaic world of electricity networks.

US consultancy Northeast Group reckons $17bn will be invested in ‘smart grid’ systems around the region in the next 10 years, in areas such as smart metering, home energy management and battery storage. “Most of the near-term investment will be in GCC countries,” says Chris Testa, research director at the firm. “Countries such as Egypt will make up a larger share of investment, beginning in the early-to-mid-2020s”

Among those pushing ahead is Dubai Water & Electricity Authority (Dewa). In 2014, it announced a three-pronged effort to modernise its network and promote energy efficiency.

The first initiative is to install solar panels on buildings around the emirate. The electricity generated will be used onsite, with any surplus exported to the network. The second element involves the installation of smart meters, which allow customers to easily monitor their consumption and, it is hoped, reduce their electricity use and cut their bills. The third element is to install electric vehicle charging stations around Dubai.

Of the three, it is smart metering that will affect most people first. Dewa plans to install 200,000 devices by January 2016. More than 1 million should be in place by 2020. That could, in turn, open the way for other smart city services down the line.

“Most smart grid investment begins with smart metering. It allows utilities to gain the real-time data that is necessary for many other functions of a smart grid,” says Testa.

“A communications network implemented for smart electricity metering or distribution automation can in some cases also be used for other smart city applications such as smart street lighting, smart traffic controls, or smart water and gas metering. Smart grids also create millions of data points that cities can analyse to improve operations citywide.”

The challenges to becoming a smart city

Published in MEED, 24 August 2015

In the Spanish city of Barcelona, the traffic lights turn green as the red lights of fire engines approach. In Amsterdam, the authorities are testing a system that lets people transfer energy generated from solar panels on their homes to their electric cars’ batteries. On the other side of the world, in the new Songdo business district near Seoul in South Korea, a centralised pneumatic waste collection system is being installed to eliminate the need for garbage trucks.

Such is the world of the ‘smart city’, where previously standalone devices talk ever more frequently to other machines. The definition of a smart city can be hard to pin down. As well as the examples above, it could contain car park monitors to alert drivers of free spaces or sensors to detect leaks in a water network. But a common thread is the collection and sharing of data.

This era of the ‘internet of things’ and machine-to-machine communication should, claim its advocates, make our lives easier, make us less wasteful and make cities more sustainable. But making that a reality is not straightforward. It requires heavy investment in information technology (IT) networks, monitors, ‘smart meters’ and the like. It also requires government bodies to collaborate and be more open to the public, in ways they may find uncomfortable.

The amount of money being spent is already starting to add up. US consultancy Deloitte predicts that 1 billion wireless internet-of-things devices will be sold around the world this year, worth a total of some $10bn. The value of the associated services that go with these devices could be $70bn. The Middle East will account for about 25 million of those devices, worth a total of $250m, along with $1.7bn in services.

Most of the regional activity is in the Gulf, which has the money and the inclination to adopt the technology. “A necessary requirement for smart cities is the availability of a highly developed infrastructure,” says Mohammad al-Shawwa, research manager for Arab Advisors Group, a Jordanian research firm. “In our region, the GCC countries remain ahead of the pack when it comes to both the level of deployment and the adoption of high-tech infrastructure, so they are in a better position.”

One of the earliest projects was Masdar City in Abu Dhabi, which was launched in March 2006 with the aim of creating a zero-carbon city. Construction began in 2008, using 90 per cent recycled aluminium, low-carbon cement and other sustainable materials. Masdar is really a suburb of Abu Dhabi rather than a city in its own right, but such greenfield sites represent a relatively easy way to test new technologies and create more sustainable developments. Authorities elsewhere have taken a similar view.

Saudi Arabia, for example, has launched several developments in and around the capital, such as the King Abdullah Financial Centre and the Information Technology & Communications Complex, where technology infrastructure can be up to date. At the same time, the government has also been pushing forward with entire new cities such as the King Abdullah Economic City on the west coast, where public transport, cycling and walking will be prioritised over cars.

But if a country is to make the most of the opportunities, it also has to modernise its existing infrastructure. That is what is happening at the kingdom’s Yanbu Smart City Project, under a 20-year deal between the Royal Commission for Jubail & Yanbu and local telecoms firm Mobily, signed in September 2013. The first phase covers the development of the telecoms infrastructure. Subsequent phases will include smart electricity grids and solar panels.

In Qatar, the authorities are also pushing ahead with new developments such as Lusail to the north of Doha and the remodelling of existing areas. The local Msheireb Properties is redeveloping the old centre of Doha in what it labels the world’s first sustainable downtown regeneration project. Under the Msheireb Downtown Doha scheme, heavy goods vehicles will be pushed underground to make the area pedestrian-friendly, and buildings are designed to use less energy and water.

On a nationwide basis, the Qatari authorities are rolling out a new high-speed broadband network, under a five-year programme that began in March 2011. It is being implemented by the local Ooredoo, using technology from China’s Huawei.

However, among all the Gulf cities, it is probably Dubai that is best placed to develop as a smart city, according to analysts.

“Dubai presents the most likely candidate for developing a smart city, given the government’s current focus on digitising services and fostering entrepreneurship and innovation, as well as its relatively developed IT infrastructure,” says Michael Romkey, director of Deloitte Middle East.

Smart Dubai

The push is coming from the top. In 2013, Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, launched the Smart Dubai initiative, based around areas such as transport, communications and urban planning. It aims to deliver higher-speed internet access and put more government services online, ranging from traffic information to emergency services.

Several developments in Dubai already encompass some of the principles of a smart city, including Dubai Design District and Silicon Park at Dubai Silicon Oasis.

The latter is due to be completed by the end of 2017. It will include electric cars and bikes, street-side charging docks for phones and smart lighting systems that respond to traffic and pedestrians.

Expo 2020 offers another opportunity. “I believe the best opportunity within the Middle East to achieve a smart city is in Dubai, and Expo 2020 is the great opportunity for Dubai,” says Sameer Daoud, managing director for the UAE at Arcadis, a Dutch design consultancy. “A lot of things are linked to the Expo, including the extension of metro lines, the expansion of the airport, utilities, and commercial and residential buildings.”

More projects are bound to emerge in the future. Deloitte reckons the number of new smart city developments in the GCC will double within the next two to three years.

The cost of all this is hard to quantify, but the IT requirements are substantial. Alex Chau, the Hong Kong-based research director for UK-based Machina Research, says cities need to lay down a fibre-optic backbone and link that with wi-fi and low power wide area (LPWA) networks, the latter for use with smart metering systems.

The networks will also need enough capacity to deal with the ever-growing amount of data. The Middle East and Africa region generated more than 30 exabytes (30 billion gigabytes) of cloud data traffic in 2013, according to Deloitte, and it could reach more than 260 exabytes by 2018.

Ultimately, the price will come down to how ambitious a city chooses to be. “The cost of developing a smart city depends entirely on the depth and breadth of the projects,” says Romkey. “Songdo is estimated to have cost $40bn. On the other hand, Citizens Connect, an iPhone application used in Boston that allows citizens to place complaints about problems around the city, had an initial development cost of only $25,000.”

As the demand for services proliferates, so have deals between telecoms companies and technology firms. In December 2013, for example, Vodafone Qatar and Australia’s NetComm Wireless signed a strategic partnership to work on smart city applications such as intelligent transport and smart medical devices.

In March this year, Ooredoo announced it was working with Sweden’s Ericsson to launch a cloud-based machine-to-machine platform in Indonesia, with Qatar, Algeria and other markets to follow in the future. Meanwhile, Saudi Telecom Company is working with the likes of the US’ Cisco and SK Telecom of South Korea to develop cloud, mobility and security services. Etisalat is working with Ericsson and Huawei among others, and Du is working with Hong Kong-based PCCW Global.

It is not simply a matter of telecoms firms and equipment manufacturers teaming up. Utility firms are also exploring the potential of smart metering systems to reduce energy and water use. Among the most active is Dubai Water & Electricity Authority (Dewa).

There are plenty of other possible applications that have yet to be fully exploited, from insurance companies using sensors to monitor driving standards and reward better drivers, to logistics firms using enhanced vehicle tracking systems, and remote patient monitoring by health services.

Privacy issues

If it is done well, all this could lead to more economic growth, with new business sectors emerging and existing sectors being more efficient. But hardware and software can be installed without a city really becoming smart. To make the most of the potential, different systems and service providers will need to interact. Convincing bureaucrats used to working in discreet silos that they must collaborate will not be easy. The process will also throw up security and privacy issues.

“The biggest challenge is having to connect multiple systems into one system,” says Daoud. “It creates risks for the government because there are security aspects. If someone can hack into the system, they can control the infrastructure of the city. For individuals, the most worrying aspect is privacy.”

Some other cultural differences will have to be overcome. Governments will need to be more open with their data, which may not come easily to authoritarian rulers in the region. Also, consumers need to be convinced to use the technology. In some instances, that may be harder in the Gulf than in other parts of the world. Utility bills are heavily subsidised in the region so there is not the same incentive for consumers to use smart meters to keep bills down.

“One of the challenges faced by smart cities is changing the mindset of the people,” says Al-Shawwa. “The normal citizen will not adopt new services unless they are more efficient and easier to use than their alternative.”

And when it comes to technology, there is of course always the risk of obsolescence. Whatever systems are put in place today will probably have to be replaced in 10 or 15 years. If a city opts for technology that is superseded more quickly, or if a developer goes out of business, that time frame could be far shorter.

“If a city chooses wrongly and the technology provider goes bust then in a few years they’ll need to purchase a new solution. That’s why there is a lot of caution right now,” says Chau.

It is one thing to become smart. Staying smart will require just as much effort.