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Wednesday, October 20, 2021

Sustainability a key factor for UAE Real Estate and Infrastructure Projects

22 May 2013 - Doha Bank, which operates full branches in Abu Dhabi and Dubai, hosted the final round of its series of GCC summits on Real Estate, Infrastructure and Urban Planning which brought together some of the region’s leading consultants and advisory firms to discuss opportunities and trends in the UAE’s real estate, construction and infrastructure development sectors.

The event was held in Dubai at the H Hotel on 21st May and on 22nd May in Abu Dhabi at Le Royal Meridien.

The participating presenters were from Damac Properties, Morgan Stanley, The Boston Consulting Group, KEO, PKF-TCH Group and the Qatar Green Building Council.

Doha Bank Group CEO Dr. R. Seetharaman delivered the inaugural address by setting the stage with a global economic overview. He said “In April, the IMF said it was lowering its outlook for world economic growth this year to 3.3 percent, down from its forecast in January of 3.5 percent. US economic growth is expected at around 1.9 percent this year, down from its January estimate of 2.1 percent. It also expects that the combined economy of the 17 euro countries will shrink 0.3 percent in 2013. Sluggish global economic recovery, increasing energy production in the US and slightly slower growth in China had put pressure on oil prices recently. Gold prices had also fallen.”

Dr. Seetharaman then highlighted the trends impacting projects and infrastructure development in the UAE: “The UAE is undergoing stabilization has resurged from the property bubble, supported by tighter controls and more cautious optimism in the market. The IMF said this week that is not worried about Dubai’s ability to meet its financial obligations, boosting confidence in many sectors. It also added that the emirate’s economic growth may accelerate to 4 percent this year as the construction and logistics industries revive.

“A clear indication of the success of the UAE’s strategy can be seen in the Dubai Land Department’s impressive statistics for the first quarter of 2013 that show a 63% growth in the total value of transactions made reaching Dhs44bn, with the number of transactions carried out totalling 14,260 – at a rate of 223 per day and 32 per hour, which is phenomenal. According to the data, sales transactions reached 10,913 for a total value of Dhs24bn, with mortgages accounting for a large proportion of Dhs17.8bn. Total land transactions made by the Land Department reached Dhs28bn, with commercial land transactions achieving the highest value in terms of type of sub-land property by 37% of the total, while the total value of mortgages reached the highest level (54%) in terms of transactions made (986) worth Dhs15bn.The total value of residential unit transactions made equalled Dhs13.9bn during the first quarter, with sales transactions constituting 82.4% of the total number valued at Dhs11.4bn.

“By the end of 2011 leading up to the first quarter of 2013, in the UAE’s key segments such as hospitality and infrastructure, as well as plans to add commercial and residential square footage have been registering positive numbers. The UAE Central Bank in March this year said it aims to implement a first home mortgage loan to value ratio of 80 per cent for nationals and 75% for expatriates with a tighter sliding scale of subsequent mortgage caps at 65 per cent for nationals and 60 per cent for expatriates seeking a second or third home. This is a positive measure that will help ensure future property market stability. This coupled with strong government programmes to support the market are expected to be core platforms for the UAE’s property sector.

The mechanisms of real estate registration, which require only one day for processing in Dubai, have also improved the country’s results in the Forbes ranking of ‘The Hottest Real Estate Markets On Earth,’ which ranks real estate markets in 2012 based on the average house price growth. Dubai is ranked second only to Hong Kong on this scale.

During the summit held in Abu Dhabi, Ed Senior, a Vice President in Morgan Stanley's Global Capital Markets Group said while global property and infrastructure finance is still recovering the UAE presents a different business case and one that is already flourishing. He said funding markets are changing due to the Euro Crisis and Basel III.

In the current market, funding is available particularly for infrastructure. In 2012, for example, global infrastructure funding according to Morgan Stanley data stood at around US$362 billion down from the US$523 billion seen at the most recent peak of the market in 2008. This investment split has seen the MENA region punching above its weight in recent years. /p>

Mr. Senior said UAE banks have been growing strongly in the past few years. During his presentation, he cited the loan books of a Europe-based bank and an Abu Dhabi-based bank which were on par during 2008. At the end of 2012, the UAE Bank had grown its loan book 48% since 2008, while the European bank ended the period down 47% from its 2008 loan book. He said one of the major reasons for this is the fact that banks in the UAE are committed to funding infrastructure.

Another trend developing in line with Basel III, he said, is the shortening of project finance loan tenors which in 2012 was an average of 10.9 years, significantly lower than the 13.8 years average tenor available during 2008.

At the Dubai summit, Mr. Hussain Sajwani founder and Chairman of global conglomerate the DAMAC Group was one of the keynote speakers. Mr. Sajwani said The UAE’s property and projects market is benefiting from growth in tourism, hospitality and trade particularly as Dubai and Abu Dhabi are key business hubs in the region. The country is witnessing better performance in terms of both value and rental yield in selected projects and this is partly due to positive customer sentiment and partly due to the efforts of the developers to ensure a sustainable marketplace and seek quality buyers. It is an often overlooked fact that Dubai in particular, with Abu Dhabi catching up fast, is still one of the most sought after global property markets, he said.

Since the establishment the Real Estate Regulatory Agency (RERA), optimism – and more importantly confidence and security – has slowly been restored. In recent years, RERA and the Land Department have created and enforced a much more comprehensive and transparent regulatory framework. Legislation was also implemented clearly indicating rules for property ownership by UAE nationals, GCC nationals and non-GCC nationals. This has afforded greater protection to buyers, investors and developers. It also created a critical platform that has reduced risk, affording banks the confidence to increase lending.”

Charles Bott, Business Development Director at PKF, later spoke about project efficiency as a core platform to complement regulatory standards as well as deliver value to financiers and project principals: “The success of a project depends on the complete development of program definitions. We believe in “Business-led Design” which requires a solid Business case first before greenlighting any design activities. The business case is best established by independent business advisors covering Highest & Best Land Use Assessments (HBU), a land assessment and destination program, followed by a fully-fledged Market & Financial Feasibility Study (MFFS).To avoid financial failure or failure because of incomplete project definition, sufficient time between HBU and creation of concepts by designers should be allowed. This creates the strong foundations required to deliver a comprehensive project. Based on target markets and product positioning, it is essential to reach a fact based consensus with the designers on development program – including budgets. This should encompass every planned structure and land use intended for the site. The key take away is that designers are not best suited to develop concepts or components without program definition.”

Mr. Massoud Bafti, a senior member of KEO’s PMCM International Division who is the Senior Risk and Opportunity Facilitator within the project control department of the consultancy said: “For companies seeking to be competitive and effective in a lucrative and competitive marketplace, it is also imperative to understand and manage risks and opportunities. This can decrease the probability or impact of negative events and increase the probability or impact of positive events. The commitment was essential as risks and opportunities need to be addressed proactively and consistently so that companies can communicate them openly and honestly. This is a multiple stage process and involves planning the risk management process, identifying risk and opportunities, performing specific qualitative and quantitative analysis, followed up by planning risk responses, and live monitoring and administration of controls to manage it properly. In such programmes, a standard scoring system is utilized that ranks risk by likelihood and impact to deliver targeted solutions. “

Mr. Ganesh Mohan, Partner and Managing Director at the Abu Dhabi office of The Boston Consulting Group said “The secret to superior economic performance is a combination of establishing and building on a sustainable competitive advantage and having a motivated and energized organization that is capable of going beyond the base essentials. Research suggests that benchmarked fortune 1000 companies demonstrate that economic factors contribute just 18% of actual profitability at these companies as opposed to a comparatively large 38% of various organizational factors that contribute directly to company profitability.”

Meshal Al-Shamari, the Director of the Qatar Green Building Council, was also one of the guest speakers. He highlighted the business case for adopting green building standards. He said Globally, governments are increasingly focused on measures to save energy and protect the environment. In the UAE, the pace of infrastructure development is among the fastest anywhere in the world, and recently, a number of initiatives have been taken by regional authorities and industry leaders to improve the efficiency of buildings. He said building green does not necessarily need to cost more. There is an overall trend in the reduction of design and build costs as markets mature and that upfront costs are often offset by a decrease in long-term life cycle costs.”

He said studies by the world green building council shows a pattern of green buildings being able to more easily attract tenants and to command higher rents and sale prices. Local market conditions have a significant impact on the value of green buildings. Sustainability risk factors can significantly affect rental income and the future value of real estate assets, in turn affecting their ROI. Changing tenant preferences and investor risk screening may also translate into risk of obsolescence for inefficient buildings.

Doha Bank Group CEO, Dr. Seethraman concluded the summit by thanking the invited guests and speakers for demonstrating the key synergies that exist between Doha Bank and the respective presenting organisations that can prove extremely beneficial to Doha Bank’s corporate clients.

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