Although the UAE, as an emerging market, provides a robust environment for global institutional investors, the risk-reward equation isn’t favourable. While investing in an emerging market, the investor is automatically taking a higher risk, thus expecting higher yields. The UAE, according to the Group COO of Abu Dhabi Financial Group, isn’t in a position to provide that kind of yield yet.
“Real Estate, for example, does not provide a risk-reward kind of equation for an emerging market”, said Mustafa Kheribi, Group COO of Abu Dhabi Financial Group.
“To be investing in real estate and other elements in this region, you are expecting a mid-teens to low teens return and we are not there yet unless you are highly leveraged”, he said.
However, given that the UAE is only 47 years old, it still provides one of the most lucrative opportunities for institutional investors and Foreign Direct Investment.
“The government here has been forthcoming in terms of setting up the legal system and land registry system. Although it is being developed as we go along, it has come a long way. We can’t forget that we are only 47 years old here. What we have accomplished in this short period of time is light years compared to other people in the region and even globally”, he said.
Moreover, foreign institutional investors are looking for long-term commitments, especially from an emerging market. So, it isn’t the “vanilla” residential real estate projects, but larger infrastructural project that are going to be the main targets.
“When we are looking at what is changing, we are looking at infrastructural projects around the region. Saudi has new airports coming up, we have Etihad Rail in Abu Dhabi, and we have the new airport in Dubai”, said Simon Townsend, Regional Director of CBRE.
He added, “A lot of infrastructure projects are long term and the commitment from the government and then providers of that infrastructure is long term. There’s where I think the government wants the foreign investment and where the returns could be given. The risk profile is higher than a vanilla real estate building as it is a different asset class”.
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