New funds and projects in Saudi Arabia are trying to make sure that regional property investors’ interest is not dominated exclusively by what is on offer in Dubai realty. Dammam based International Investment Real Estate (IIRE) has launched a specialist fund that will offer investors exposure to income-generating property assets in key Saudi cities.
Created as a real estate investment trust (Reit), the fund — with a minimum investment requirement of $100,000 (Dh367,000) — has a one-year tenure and promising investors guaranteed returns. “We are confident enough to guarantee a minimum of 20 per cent net return to our investors; we believe this guarantee is extremely prudent and backed up with extensive research,” said Raed Al Khars, CEO of IIRE.
“Our primary job is to minimise risk due to which most of our investments are made in buying land only... therefore we are not dependant on projects to get constructed which takes a longer duration.”
IIRE had launched operations in 2007 by marketing the Al-Ardiyah Project at Duruma province near Riyadh. This was followed by projects that included acquisition of a portion in Zahrat Al Rabi’aa I and II at Al Muzahmiyah.
Long term
It was last year that the first realty fund was launched and generated 35 per cent to investors when it was liquidated at the end of 2012. There was a second fund early this year and liquidated in the fourth quarter, which again fetched a plus 30 per cent return. “Today’s investor is reluctant to tie themselves in long term investments,” said Al Khars.
There is a lot happening on the ground in Saudi Arabia, with development activity seeing a surge after the government announced a slew of affordable housing initiatives in the last two years. But private developers too have lots to occupy themselves with, such as the 1-kilometre high Kingdom Tower in Jeddah. Dubai headquartered Damac Properties too has its hands in Saudi Arabia’s realty stakes with three projects.
Interestingly enough, while land for development is not in scarce supply, the values they go for are. “Availability of land at a value that justifies a development is an issue,” said Gaurav Shivpuri, head of capital markets at Jones Lang LaSalle, the consultancy. “Most of the sharp increases in value is for land when new infrastructure projects are announced by the government.
“Usually, developers who have significant land banks acquired over years are in a position to build and sell at market values.”
Continuous growth
But with the government coming in strongly with social housing projects, is domestic demand skewing away from the more expensive private sector offerings? Al Khars insists this is not so.
“Since 2005, we have seen a shift in the real estate sector with regards to the public-private ratio of projects,” Al Khars said. “Today some of the major projects are pioneered by private firms. However, the government is far ahead of the private sector which in my opinion is positive, because it gives confidence to the private sector to increase their investments which ultimately creates more confidence for the end-user.
“The launch of an industrial city near Riyadh is a recent example and the expansion of the overall city of Riyadh until Al Ammariyah represents continuous growth in the sector. Over time, the realty market will definitely become broadbased as we can see it happening in mature markets like the UAE.”
