Abu Dhabi turns to joint venture deals to shore up real estate market

The March 2018 announcement of a Dh30bn ($8.1bn) joint venture (JV) between Dubai-based Emaar Properties and Abu Dhabi’s Aldar Properties has created a wave of interest in the potential of such arrangements for the broader real estate sector. While the Emaar-Aldar agreement is unique in its size and scope, Abu Dhabi has seen an uptick in the number of local entities jointly developing property or seeking partners since 2017.

A New Trend

The recent economic climate in Abu Dhabi, with firms downsizing and bank financing harder to access, coupled with welcomed 2016 legislation requiring the use of escrow accounts for off-plan developments, has made JVs an increasingly attractive option for real estate projects, as they allow investors and developers to share risk while at the same time pooling resources and experience. Such considerations are behind a number of new agreements. In April 2018 Mubadala Real Estate & Infrastructure (MREI) was preparing for increased growth in the property market in 2019 by negotiating with a handful of potential JV partners for near-term projects. Meanwhile, Abu Dhabi-based developer Eagle Hills Properties was sought out as a JV partner for its development expertise by the Sharjah Investment and Development Authority. Signed in January 2018, the Eagle Hills-Sharjah JV is now developing three projects in Sharjah worth $735m.

As oversupply is one of the biggest challenges facing the sector at present, an indirect benefit of JVs could be more extensive coordination between different developers. In an April 2018 interview with Abu Dhabi-based newspaper The National, Ali Eid Al Mheiri, executive director at MREI, described the Emaar-Aldar JV as “a good signal to the market that there will be coordination in terms of control of supply”.

The Emaar-Aldar Deal

The principal drivers behind the Emaar-Aldar JV are more specific to the two developers’ statuses as the largest in their respective emirates. The first phase of the agreement was announced in March 2018 and covers the joint development of two projects, Saadiyat Grove in Abu Dhabi and the Emaar Beachfront condominium complex in Dubai, while a statement of intent provides for further collaborations in the future. With Saadiyat Grove, Emaar has marked its entry into the Abu Dhabi market by acquiring a stake in one of its most high-end real estate properties. Located in Saadiyat Island’s cultural district, when it is completed in 2021 the development will consist of 2000 residential units, roughly 130,000 sq metres of retail and recreational space, and two upscale hotels.

Aldar, meanwhile, is gaining a stake in the Emaar Beachfront development, which is situated on an artificial island in the Dubai Harbour. The development will constitute 929,000 sq metres of residential, retail and recreational space in 27 residential towers.

The deal also gives both firms the opportunity to expand their respective investor bases and reach new markets. In a statement to press in April 2018, Mohamed Khalifa Al Mubarak, chairman of Aldar Properties, said that the deal “will expand the country’s portfolio of iconic real estate properties”.

Bigger Picture

The deal has raised the profile of Abu Dhabi’s real estate market, and it is hoped that it will have a broader positive impact on the entire sector. “The two emirates have historically been seen as two separate real estate markets,” Mai Hassan, manager at JLL, told OBG. “Dubai buyers do not usually buy in Abu Dhabi, but we may see that change with the Emaar-Aldar JV agreement.” At the national level, creating such a large-scale JV partnership could potentially enhance the UAE’s competitiveness, as well as its appeal to institutional investors. Speaking at the signing ceremony, Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai, stated that the overarching goal is for the two companies to be at the forefront of development and to collaborate with each other on exploring creative ideas for strengthening the leadership of the UAE.