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 Unitas Consultancy STRICTLY CONFIDENTIAL Back to the Future: Dubai’s Reversal of Fortune 2012 This document is provided by Unitas Consultancy solely for the use by its clients. No part of it may be circulated, quoted, or reproduced for distribuFon outside the organizaFon without prior wriJen approval. Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, Dubai, UAE, info@unitasconsultancy.com Table of Contents A) Objective
B) Group Profile
C) A Walk through of Dubai’s Real Estate Market
D) Unitas Projects
E) Conclusion
ObjecFve To:
• Provide customized solutions for its clients that meet the twin objectives
of wealth creation and capital preservation
• Evolve strategies that capitalize on the expanding role of the city in
various sectors with exit points and annuity like income streams
• Offer opportunistic & innovative products for high net worth customers to
capitalize on current market conditions
Table of Contents A) Objective
B) Group Profile
C) A Walk through of Dubai’s Real Estate Market
D) Unitas Projects
E) Conclusion
Group PorPolio Private Equity Real Estate Trading Development Unitas believes in in-depth planning and discipline as a mechanism to identify and exploit
market discrepancy and capitalize on diversified revenue streams. Towards this end Unitas
has entered into Trading and Real estate funds with a view to offer investors access to the
rapidly growing market sectors in Dubai in a seamless and transparent manner.
Furthermore, it has made forays into the e-commerce and the F&B sectors as well as
facilities management with a view towards diversifying income streams.
A study of the performance of pension funds found that more than 90 percent of a portfolio
performance results from its asset allocation, yet typically most institution spends as little as
5 percent of their time on this important task (source: Financial Analysis Journal June 1991)
ProperFes Table of Contents A) Objective
B) Group Profile
C) A Walk through of Dubai’s Real Estate Market
D) Unitas Projects
E) Conclusion
A Walk through of Dubai’s Real Estate Market • The Rise of Dubai (2002-2008)
• The Bubble (2008)
• The Road to Recovery (2008-2011)
• Back to the Future (2012)
The Rise of Dubai “Before evaluating the future, we have to take a quick look at the past, for it is
the foundation of tomorrow” – HH Sheikh Mohammad Bin Rashid Al Maktoum
Dubai’s Growth in the Global Economy has been Without Parallel “Buy Land where the City Ends”
Mark Twain
Dubai 2012 A birds eye view of Dubai economy reveals a remarkable
transformation from a backwater desert to a global player
increasing more than 26% CAGR. GDP growth has averaged 8%,
coupled with the population tripling in size.
Value Discovery Phase (2004-­‐2007) • The strategic plan 2015 of Dubai was announced in 2002 followed, by the
announcement of freehold property, sparking an asset boom
• Iconic projects announced such as Dubai Marina, Jumeriah Lake Towers,
Burj Khalifa and Downtown district, The Palm Islands and the Dubai Metro
• Prices increased by an average of 20 percent per annum as capital from
neighboring countries was deployed through asset purchases
• The city state started incurring high levels of debts to finance infrastructure
projects
The Bubble “Men, it has been well said, think in herds; it will be seen that they go mad in
herds, while they only recover their senses slowly, one by one” – Charles Mackay
The 2008 Crash • Speculative real estate activity reached a zenith as the phenomenon of offplan “flipping” gathered pace
• Inadequate regulatory infrastructure meant that overzealous brokers and
developers encouraged unhealthy market practices
• The United States of America financial bubble collapsed most explosively by
the failure of Leman Brothers setting the stage for credit contraction
• According to UAE Central Bank data book 2008 mortgages as a parentage
of overall loans exceeded 30%, prompting a warning by the Central Bank
Governor to curtail lending
• Speculative activity peaked after a YoY price increase of 80% triggering a
sell off after banks refused fresh funding both developers and end users
Business Cycle theory Reveals that Dubai followed the Classic “Boom – Bust” cycle When we look at classic Kondratieff theory Dubai price boom (2008) quickly led to bubble like conditions
principally fueled through “cheap money” as investors levered excessively, leading to unsustainable capital
structure models. This ultimately led to boom and bust scenario, which accelerated to the down-side as the pace
of decelerating asset values, accelerated further based on “margin calls” and “fire sales”. This period lasted from
2008 to 2011 giving way to “distressed” asset valuations.
Dubai peak to trough asset valuation registered a 65 percent price fall setting the stage for value discovery as
Dubai macro economics factors righted itself and exogenous factors (Arab Spring) are leading to “mean
reversion”
The Road to Recovery “You don’t learn to walk by following rules. You learn by doing” – Richard Branson
The Way Back … • Dubai successfully renegotiated multilateral and bilateral bank debt, easing
budgetary constraints
• The Arab Spring and the continued unrest in the region led to the fresh
influx of capital into the real estate market, sparking a revival of asset value
(Afghan nationals emerged as the fourth highest buyer of real estate in the
first half of 2012 according to the Land Department)
• Dubai started announcing infrastructure projects including the revival of
Universal Studios, Bid for World Expo 2020, and the development of the
massive Mohammed Bin Rashid City (MBRC)
• Dubai strategic plan for 2030, expected to be unveiled in Jan 2013; aims to
double housing supply by 2025, with a target base population of 5 million
An Analysis on Dubai’s Real Estate Market Reveals that an InflecFon Point has Reached and OpFmism is Returning Classic business cycle boom-bust theory indicates a four stage
approach which Dubai went through from period 2002-2012
Yale professor Robert Shiller book
Animal Spirits refers to this cycles in
qualitative terms in various phases. An
extrapolation of this into Dubai price
cycle indicates a revival of optimism in
the real estate market (17 percent
increase in rent, 20 percent increase in
prices from the trough)
Price Cycle Theory Suggest that the OpFmism is Based on Strong Fundamentals 400 Mispriced over 40% 350 300 250 200 65% Peak to Trough 150 100 Mispriced low 28% perctange Equilibirum 50 0 Jun-­‐04 Jun-­‐05 Jun-­‐06 Jun-­‐07 Jun-­‐08 Jun-­‐09 Jun-­‐10 As can be seen from the above Dubai’s price point dynamics indicate the classical cycle of optimism, giving way to euphoria
then followed with a typical bust. Data from the above chart indicate that market fundamentals gave way to mispricing of 40 %
setting the stage for correction in asset values that last for period of 3 years. In 2012 given macro-economics factors and
Dubai’s own infrastructure projects that have been announced, pries have not only stabilized but are reverting to the mean as
a process value discovery is underway
The Real Estate Cycle Dynamics Reveal that Dubai is in the Strong Growth Segment Dubai As Dubai evolves into a two-tiered market with a strong underpinning of asset price revival, the city
seems to be well in place for the growth value trajectory curve. In response, supply dynamics are
also expected to scale up as government and private sector developers cater to the rise of expatriate
demand
A Rental Analysis by Market Segment Over Time Reveals a Revival … After declines for three years commencing in 2009
apartment rents have stabilized in 2012 and have shown an
average increase of 10 percent. The highest percentage
increase has been cluttered around 3 bed rooms; implying
that there has been an influx of high income families
Villa rents and pries exhibited greater resilience to the down
turn and have witnessed a strong rebound in 2012,
evidencing the claim that supply shortages have already
been felt
… And the Beginnings of a Turn Around in the Commercial Segment Office rents exhibited a sharper downtick as the over
hang of supply took effect and peak to trough rental
falls registered 50 percent. Whilst prime office
stabilized earlier the entire market seems to be
exhibiting a gradual recovery
In 2008 average lease rates in Dubai were amongst top 10
locations in the world. In 2012 Dubai much more modest lease
rates has begun to attract SMEs and corporate houses alike
ValuaFon RaFos Indicate Significant Upside PotenFal Villa rents have recovered to their pre
crash level, whilst apartments still trade
at a discount of 20 percent. CBRE
estimates this gap will narrow as Dubai
embarks on its latest infrastructure boom
Villa prices seems to be exhibiting the
sharpest increase give the relative
shortest of supply. However, the average
Price to sales ratio for all three segments
seems to indicate upside potentials
comparative ratios in developed market
exceed 25
ResidenFal Rental Sale Dynamics Industry consensus indicated that both rental and sale prices are on upward incline.
This trend is expected to accelerate as infrastructure spending gets underway.
25 % of Buyers are Indians & Pakistanis Indians 17% Others 38% BriFsh 12% Pakistani 8% Saudi 5% Russian 7% Irani 7% Jordinians 0% Americans 3% Canadians 3% What are they buying? Condos Preferred purchase by vacation, seasonal home buyers, short term expatriate couples, single professionals
Villas Preferred purchase by nationals of UAE and GCC. Primary home for families and long term expatriate couples and Investors
Offices Currently dominated by market movements and investors. Expected to ease out as market stabilizes
Office SegmentaFon Analysis Commercial real estate suffered from a massive over hang of supply and is now beginning to see first signs of
revival. As can be ascertained from below, nearly half of expected supply is in the Business Bay segment, supply
of which has been pushed back to 2015-2020. This augers well for the embryonic recovery in this sector
1001 Arabian Nights: An Analysis of the Hospitality Sector 1,700 branded hotels rooms have been added to the market between January and September 2012. 3,300 guest rooms
are expected to be delivered by the end of the year. Dubai continues to see favorable recovery in hotel performance
supported by a double digit increase.
The ambitious MBRC has already announced the construction of 100 new 5 star hotel, totaling 35,000 hotel rooms to be
completed by 2025.
Dubai continues to surpass world expectations by increasing world supply by 60%, in accordance with its strategic plan
that envisages annual tourist arrivals of 20 million per year by 2020. Airport traffic crossed 33 million in July 2012.
Expected PopulaFon Growth is Key to Dubai’s ConFnued Success … Critical to Dubai's growth is the anticipated increase in Dubai's population. An increase in 6 percent
per annum (putting Dubai's growth in the top 0.5 % of all city growth in the world) leads to a population
surpassing 3.25 million residents by 2020. This is what is expected to stimulate residential and
commercial demand. Obviously, if growth rates come on in the low end of the curve, then the
cumulative impact on Dubai’s population is affected drastically, thus skewing demand dynamics
Stable Economic Fundamentals Appear to be in Place 4.5 4 3.5 3 2.5 GDP 2 New licenses 1.5 1 0.5 0 2010 2011 2012 Inflation in the UAE has steadily eased reflecting moderate price pressures and enhanced GDP growth. This has
translated into new company activity over the last two to three years and a corresponding spike in new company
formation in 2012. This trend is expected to continue due to the exogenous factors (Arab Spring) and endogenous
factors (increase infrastructure spending, tourism)
Dubai Housing Supply to more than Double by 2025 With Dubai more than doubling its housing supply by 2025, the issue of supply and demand largely hinges on the city’s ability to
sustain aggressive population growth. Only six countries in the world sustain an annual growth rate of 4.2%, most of them are
developing nations (Tanzania, Nigeria, Congo, Bangladesh) and the average growth rate of all the nations is 1.6%. Dubai’s boom or
bust is a question of demand matching supply (approximately 800,000 units by 2025) that could practically house the entire nation of
Kuwait and Qatar (Population 3,635,648)
Currently, the sense is that the market is skewing towards upscale and apartment-oriented developments on Emirates Road. Unless
products and pricing shift considerably, there will be excess supply towards the end of 2020. The question of infrastructure capacity
continues to be raised and the impact that will have on the quality of life of current Dubai residents. As delays continue, the rate of
inventory hitting the market is reduced, potentially batching delayed product with inventory further in the pipeline. In short, brand
noise will increase, competition will get fierce and actual supply will be haphazardly distributed. It is apparent that the market will
become two tiered with the bulk of the supply being on the Emirates and Al Khail Road corridor. This will further add upward price
pressure on the Sheikh Zayed road landscape as it is devoid of substantial new supply (barring Dubai Waterfront)
If Dubai continues to grow at an average rate of
approximately 5% (which places it in the top 1% of all the
countries annual growth rates), there will be enough
demand to meet supply
If Dubai continues to grow at an average rate of 3%
(which places it in the top 15% of all the countries annual
growth rates), there will likely be an oversupply of
housing units
Based on a 5.4% CAGR on populaFon. Based on a 3% CAGR on populaFon. Demand and Supply of Households Demand vs Supply Analysis 2012 2013 2014 2015 2016 2017 2018 2019 2020 Demand for Households 45,860 33,860 14,140 30,060 43,470 52,470 52,800 57,800 46,630 Supply of Households 17,000 26,000 7,000 40,000 48,000 50,000 52,000 54,000 56,000 Demand/Supply Gap (28,860) (7,860) (7,140) 9,940 4,530 (2,470) (800) (3,800) 9,370 Cumula^ve Surplus Shortage (28,860) (36,720) (43,860) (33,920) (29,390) (31,860) (32,660) (36,460) (27,090) As Dubai embarks on another infrastructure boom concerns for excess supply have returned to fore. However, an analysis reveals
these concerns to be misplaced as demand appears to be far out stripping supply till 2020. This analysis does not factor into account
delays in construction, which will reduce supply even further. The bulk of the supply to be on Emirates Road, thus creating a two tier
market
Supply of Households Project Dubai Marina Jumeriah Lake Towers Discovery Gardens Emirates Hills The Meadows The Springs The Greens Palm Deira Palm Deira Villas DIFC Palm Jumeriah Villas Palm Jumeriah Apartments Palm Jebel Ali Villas Palm Jebel Ali Apartments Dubai Pearl Green Community Gardens Arabian Ranches Gazelle Dubailand (esFmated) Jumeriah Village Burj Khalifa Emmar Towers Jumeriah islands Dubai Internet City Dubai Media City Business Bay Waterfront Culture Village Lagoons IMPZ Jumeriah Island Apartment MIZIN Dubai World Central Al Furjan Dubai Silicon Oasis Dubai FesFval City InternaFonal City Sports City Jumeriah Park Mohammad bin Rashid (esFmated) Rem Raam Motor City Dubai Investment Park Grand Total No of Buildings 123 65 271 0 0 0 0 0 0 38 0 0 0 0 8 0 0 0 0 1,000 377 83 2 0 40 40 355 675 100 96 110 0 500 2,500 35 225 500 470 0 0 5,000 238 93 76 13,020 No of Residen^al Units 21,535 9,565 23,001 793 2,135 4,890 3,145 15,600 7,940 2,450 2,200 3,300 2,200 3,500 2,500 16,500 4,218 6,500 4,125 250,000 29,500 10,567 168 800 0 0 57,600 168,750 15,000 19,200 11,000 1,225 39,600 227,500 6,600 8,100 20,000 37,127 4,200 2,000 3,250 750 465 3650 1,053,149 No of Offices 0 8,900 0 0 0 0 0 0 0 8,455 0 0 0 0 1,890 0 0 0 0 100,000 6,500 6,780 0 0 2,000 2,000 78,555 50,625 2,500 7,200 5,500 0 15,500 51,200 2,100 10,500 10,000 1,099 0 0 1,750 0 4,250 0 377,304 No of Shops 781 455 890 0 0 0 0 0 0 565 0 0 0 0 225 210 255 0 0 10,000 0 575 0 0 125 125 2,135 13,500 3,500 3,360 2,750 0 0 0 0 0 450 5,986 450 0 0 896 630 0 47,863 Es^mated Comple^on Date 2015 2015 2007 2007 2004 2004 2005 on hold on hold 2014 2007 2008 on hold on hold 2014 2007 2005 2006 2006 2020 2017 2009 2004 2006 2006 2006 2020 on hold on hold on hold 2015 2012 on hold 2020 2015 2016 2020 2008 2020 2012 2030 2013 2015 2020 Back to the Future “We are proud of our past and our present, and we face the future with unflagging
determination” - HH Sheikh Mohammad Bin Rashid Al Maktoum
Expected SecuriFzaFon Trends Indicate Upside PotenFal for Investors Securitization of real estate has evolved from its tentative
beginning in the late 1970s to an estimate of USD 10.4 trillion in
the United States, and USD 2.35 trillion in Europe. The
granularities of pools of securitized assets is perhaps the biggest
mitigate in attracting individual investors. This structure has
resulted in an expected 19 percent premium in real estate values
over the last decade in the United State alone (source: University
of Chicago 2011 July; Securitization and the real estate bubble)
GCP REIT Amlak Sukuk Soruh ABS Sukuk Recent examples of Dubai Securitization
DIFC MBS Tamweel ABS Emirates REIT As Dubai's capital markets evolve, pooling of assets via real
Estate Investment Trusts (REIT) is expected to dramatically
increase allowing access to smaller investors; thus creating a
liquidity premium as experienced in more developed markets. The
establishment of state asset management companies ENSEC
and Emirates REIT indicate the governments commitment to
increase not only the transparency but also the liquidity of the real
estate industry securitization, which is a critical ingredient in any
maturing economy
ENSEC (Emirates National Securities)
The Peg Effect … • The Federal Reserve has continued its policy of Quantitative Easing and
pledged that interest rate will remain near zero till 2015
• This will fuel concerns on inflationary pressure in the UAE as economic
activity rises, similar to the conditions experienced in 2007-2008
• The Central Bank of the UAE has more effective policy tools to drain out
money supply and prudent bank lending's should ensure “cheap money” is
not available
• International economists will continue to look at the AED:USD currency peg
with rising interest, expecting an upward revision to the currency value The New Mohammed Bin Rashid City At the centre of Dubai's future plan, it’s the newly announced Mohammed Bin Rashid City, spawning an area of over
One Billion square feet. Right in the heart of the Emirate Road corridor. Whist details are yet sketchy there seems to be
little doubt that this will spark a infrastructure frenzy similar to the one witnessed from 2003 – 2008, thus acting like a
key catalyst for job creation which in itself is a critical demand driver.
Some of the New Projects Announced Recent Developments … Dubai World Expo Bid 2020 Dubai is expected to spend AED 15 billion on infrastructure as it compete to win the bid for world expo 2020. The expo is hosted
at the Dubai World central, which itself the stage for the ambitious new airport that is currently being constructed. Dubai
government officials estimate that the new airport will have a capacity to host transit one hundred million passengers per year by
the year 2020; there by making it the worlds largest airport (currently, Dubai is the 4th busiest airport in the world)
Table of Contents A) Mission Statement
B) Group Profile
C) A Walk through of Dubai’s Real Estate Market
D) Unitas Projects
E) Conclusion
Unitas Projects “Do not get scared of small beginnings…” - HH Sheikh Mohammad Bin Rashid Al Maktoum
UHQ (Unitas Head Quarters) At the heart of the Muhammad Bin Rashid
City
Boutique Offices
Anticipated Completion date : 2014
Retail Piazza on the Ground Floor
Overlooking a community park and in close
proximatity to the newly announced Dubai
Park
Private Equity Ventures Big Ben Bakery, a premium bakery established in 2012 focuses on both upscale clientele as well as the commercial customers. ConsisFng of a team of internaFonal bakers the product mix varies from themed and luxury cakes to a variety of pastries. According to the Dubai Chamber of Commerce “The food sector is going through a period of posiFve of growth with expected food consumpFon compounded annual growth forecast of 5.11% from 2006 to 2015.” GCP Building Maintenance, formed in 2009 offers Complete Facility Management soluFons for corporate, government and residenFal clients across the UAE. The regions construcFon market has spawned the need for the facility management industry. According to the Arabian Business Review -­‐ “The outsourced faciliFes management is expected to reach a value of USD 10bn by 2012.” TRADING The Dubai Bazaar, an online merchant centric shopping portal based to launch in the first quarter of 2013, offers merchants and customers a unique way to interact with each other. The website is based on the concept of a virtual mall with a diverse variety of shops displaying everything from the latest brands to home appliances. According to a report brought out by Visa and InteracFve Media “Total business to consumer e-­‐commerce sales in UAE are esFmated to have grown to almost USD 2 billion, equivalent to approximately 50 to 60% of total GCC e-­‐
commerce sales esFmates to between USD 3 and 3.5 billion.” The model of Unitas trading arm focuses on procurement from the United States of America and distribuFon within the UAE and Africa. It deals in a wide range of products ranging from garments to electronic to commodiFes. As Dubai’s economic acFvity is recovering in the region, trade once again will flourish with Customs officials expected to launch more faciliFes to accelerate custom clearance and other procedures. According to Emirates 24/7 “Dubai’s non oil foreign trade in the first 10 ten months of 2012 crossed AED 1 trillion for the first Fme in its history.” Future Plans for Developing the ‘Big Ben’ Brand Type
Name
Location
Launch Estimated
Coffee Shop
Big Ben Coffee Shop
Jumeriah Lake Towers
June
2013
Patisserie
Big Ben Patisserie
Burjuman Mall
June
2013
Juice Bar
Big Ben Juice Bar
Dragon Mart 2
June
2014
Dubai Bazaar – How it works … Backward IntegraFon of Dubai Bazaar into a LogisFcs Company LogisFcs As a strategy of backward integraFon from Dubai Bazaar, a logisFc company is set to launch in the second quarter 2013. The iniFal model of the company would focus on small and medium size businesses searching for cost effecFve and efficient operaFons. The opening of the DWC-­‐ Al Maktoum Airport in 2013 will reinforce Dubai’s trade and logisFc capabiliFes. According to Emirates 24/7 as much as $147 billion has been commiJed for infrastructure developments such as road, rail and public transport in the Middle East that would drive the growth of land, air and seaborne logisFc industry in the region.” Table of Contents A) Mission Statement
B) Group Profile
C) A Walk through of Dubai’s Real Estate Market
D) Unitas Projects
E) Conclusion
Conclusion Values ObjecFve Unitas offers its clients unparalleled experience in real estate asset management / advisory /private equity / execuFon abiliFes Unitas’s philosophy of independence is
its key distinguishing factor, offering indepth analysis across sectors, thereby
diversifying revenue streams
Capital preservaFon is the key objecFve with wealth maximizaFon based on prudent asset allocaFon decisions Array of private equity projects across the spectrum of the city offers a key component of value added services Structure • Head office established in Dubai
• Representatives in Geneva and Karachi
Partners • Global Capital Partners
• Al Danah Holdings
To Summarize Purpose
To Manage, Direct, and Create wealth for the Clients
Values
Philosophy
• No conflict of interest
• Efficient capital allocaFon • Client’s interests come first
• Rigorous analysis • Transparency is the key hallmark
• Timely execuFon Strategy
Emphasize role of diversification by leveraging expertise of
capital across Dubai in a conservative yet opportunities manor
Our AspiraFon and MoJo “No barrier can withstand the strength of purpose” HH General Sheikh Mohammed Bin Rashid Al Maktoum The Ruler of Dubai and Prime Minister of UAE