Fifteen years ago, the Dubai government issued a decree that allowed expatriates and foreigners to own freehold property in the emirate.
Local developers jumped to cash in on the foreign investment, pitching big dreams of projects that would put the United Arab Emirates on the world map.
Investors flocked and business boomed, with more cranes than anywhere in the world popping up across the city’s skyline as hundreds of thousands of new homes were built.
Now, as a new wave of freehold projects are being built across the country, the real estate arm of one of the longest-established family firms is content to shun the model of building and selling on freehold property.
The Easa Saleh Al Gurg Group (ESAG) has lots of developments in the pipeline, but all as part of its long-standing build-to-hold strategy.
“With all due respect, those freehold developments have done tremendously great,” ESAG’s group general manager Abdulla Al Gurg told Thomson Reuters Projects during an interview in May.
“(But) Our school of thought is more the old school of thought.”
This ‘old school’ philosophy was embedded by Al Gurg’s grandfather Easa Saleh Al Gurg, who founded the company in 1960.
“My grandfather has never had the urge or the need to sell anything,” Al Gurg said. “So it was constructed generally slowly… one real estate (project) at a time and it was really generally thought of in a way that it is more wealth preservation and wealth development.”
ESAG owns around 80 real estate assets, which are a combination of villa compounds, warehouse compounds, buildings and factories. It also owns a “significant number” of vacant land plots.
These assets date back as far as the 1960s and the buildings include office, retail and residential sites in Deira Creek, Mankhool, Jumeirah and Karama
New projects
“We are now in a phase of developing all our remaining empty properties... to make sure that we take advantage of what is currently available of our land bank,” Al Gurg said.
The company plans to issue main construction tenders for three projects in the UAE in the second half of 2017.
“It’s nothing very flashy,” Al Gurg said, adding that the company takes a long-term view on real estate locally, and is looking at steadily expanding its portfolio with residential lease projects in both the high- and mid-income family segments.
“It’s very humble … easy, small, nice projects but they keep us busy and they’re assets, and we’re very content with what our approach is, to be honest.”
The group’s real estate division saw 3.5 percent growth in 2016, and Al Gurg is optimistic of further growth in 2017.
He said the firm’s leasable properties are still very much in demand.
“Because we don't overcharge on rent,” he explained. “Even during the crisis... before the crisis people were inflating rent... and our rents haven’t been going as per RERA. Our purpose is that we want our tenants to be long-lasting, loyal tenants, (rather) than somebody who just comes and leaves after a year or two.”
Al Gurg said that the returns offered by real estate are in line with the company’s wealth investment strategies, and that it deploys its own capital to fund projects.
“The most important motto (from my grandfather) is that ‘real estate gets sick but never dies’,” he said.
“Interest rates on the banks are quite low,” he explained. “Bank deployment is not really very healthy. Where will you put your surplus? So I think creating activities that yield 5-7 percent is better than putting it in deposits which yield 2 percent in a bank.”
Al Gurg added that current market conditions make it a good time to build.
“I think it’s the best time because contractors are reacting to the consumer,” he said. “There was an era and an age when you used to issue the tender and nobody even considered to bid. Now you receive bids and there are people who are serious and people who are good paymasters.”
2017 outlook
While the days of waiting in line for a contractor are gone, Al Gurg predicts a positive end to 2017 for the construction sector and a rise in new project activity in 2018.
“I can see the first six months (of 2017) are very tough, (and) summer is not going to pick up, but probably the last three months will cover up for a lot of it,” he said.
“How much is it going to cover up for I don’t know, but the first six months have been quite harsh and tough,” he added, attributing market conditions to the sentiment around the oil prices.
Businesses in the emirates and across Gulf Arab states have been facing growing pressures amid the economic slowdown due to the sharp decline in oil prices.
Overall, current market conditions require patience and resilience, Al Gurg said.
“The weak are going to leave and the strong are going to (get) stronger… (it’s the) survival of the fittest, which is quite good. Once in a while you need the market to go through that.”
The Easa Saleh Al Gurg Group is a multidivisional conglomerate with 28 companies. The group product and business interests predominantly include retail, building and construction, industrial and joint ventures with a number of global conglomerates including Akzonobel, Siemens and Unilever.
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