How to invest in UAE real estate with less risks and budgets

You can invest money in the UAE not only by buying real estate directly, but also through an investment fund. How it works, what needs to be considered and how profitable it is.

The real estate market of the Middle East and especially the UAE has been gaining popularity among wealthy Russians for the second year. Here they buy housing for moving with their family or for business, as well as objects for investment. But the direct purchase of real estate is not the only way to invest money in the UAE. This can also be done through an investment fund: Kalinka Real Estate Consulting Group and Alfa Capital Management Company have such a fund. We talk about how the trust management strategy works, what needs to be taken into account when working with such an investment product and how profitable it is.

What is happening with the demand for real estate in the UAE

According to our observations, in 2023, the demand in the real estate market in the UAE continues to grow. Every month, records are set for the number of transactions in both the commercial and residential sectors. At the end of last year, the main buyers were Russians. Now they are out of the top in terms of the number of transactions: now it is occupied by the British, the Germans and the Chinese who have recently shown high demand for this market. However, this does not mean that Russians are no longer interested in the Middle East.

Recently, we summed up internal statistics, and it showed that the number of Russians who buy real estate in the UAE has fallen, but only slightly. Rather, there was a surge in demand from foreigners, so there was such a rotation in the top.

The current and future demand for real estate in the UAE from Russian investors is primarily affected by the general economic situation and the state of instability. Now people no longer have the shock that they had in the first half of last year and then returned in the fall, but there is also no absolute calm, confidence in the future. This somehow forces us to look for reliable ways to save money and increase capital.

Secondly, the demand is influenced by currency regulation. According to our observations, a great interest in real estate in the UAE from investors was due to the fact that they sought to withdraw money from the country and did it through the purchase of housing or commercial facilities.

In addition, of course, the role is played by the exchange rate of the national currency, which has been deteriorating in recent months. If it strengthens, we will definitely see more transactions on international markets. And if the currency weakens, then customers will focus on purchases within the country.

Why do we need trust management

A trust management strategy is one of the ways to invest in various assets: securities, precious metals, real estate. A specialist selects and buys assets — he can create an individual portfolio for an investor or offer him one of the ready-made, formed for different strategies: conservative, moderate, aggressive.

The scheme of the trust management strategy is simple: the client invests money in rubles. After that, the management company buys shares of a closed-end mutual investment fund (ZPIF), which will invest money in a real estate object in a particular country or region. Within the framework of our foundation — on the territory of the UAE.

This scheme is convenient in several ways. Firstly, it reduces the risks of the investor, since he does not select assets alone, but with the specialists of the management company. These are not only experienced qualified investors, but also risk managers.

Secondly, it allows you to buy several properties at once. According to our observations, the highest demand for trust management comes from investors who are interested in acquiring several objects, but for some reason are not able to simply buy them out entirely and continue to dispose of them.

In addition, investing through trust management and ZPIF allows you to participate in a diversified portfolio of real estate of different investment philosophy, different from the point of view of location and from the point of view of developers.

The standard rate of return on residential real estate in the UAE, which is indicated in all analytical reviews, is 14-15% per annum on average. The investor's profitability when working through the Kalinka Real Estate Consulting Group fund and Alfa Capital Management Company, according to our calculations, will be approximately the same.

We started working on this investment product at the end of last year, when we saw a great demand from investors. It took almost a year to prepare due to the complex technical implementation: you need to get certain licenses in the UAE, build an investment strategy and thoroughly understand the UAE market in order to make the right investment decision. The creation of such a mutual fund will be the first precedent in the territory of the Russian Federation.

Features of investing through trust management

When investing through a PIF, it is important to take into account 3 points: the threshold amount, the term of the contract and the requirements for the qualifications of the investor.

Investing through the Kalinka Real Estate Consulting Group mutual fund and Alfa Capital Management Company is more affordable than with a regular purchase of real estate: the minimum entry threshold is 1 million rubles. This is the optimal amount for obtaining a diversified portfolio for wealthy clients who cannot afford to purchase a commercial object or conditional apartments for $ 1-5 million, but at the same time who have a desire to receive returns from real estate abroad.

The term of the contract through the fund is 5 years. This is almost a standard figure for closed mutual funds: the generally accepted practice for them is 5-7 years. At the same time, our investment strategy assumes that during these 5 years we will resell at least twice the real estate objects that are in the portfolios of clients. That is, the client's money will work out 2 times, and if possible more.

Now we see a period of 5 years as optimal, and we cannot say yet whether we will change it. In the practice of the ZPIF, there is an option to extend the investment period for a year, but we have not yet decided whether we will implement it in our fund.

Regarding the investment period, there is an important nuance: an early exit from the ZPIF is not expected in such a strategy.

And the last point is that only qualified investors can invest in real estate through the fund: those who have received the appropriate status according to Russian legislation. To do this, the investor must have assets worth at least 6 million rubles (money in bank accounts or securities), or he must have 2-3 years of experience in an organization dealing with securities transactions, or have a specialized education. The full list of requirements for obtaining the status of a qualified investor is listed in Federal Law No. 39 "On the Securities Market".

There are fewer risks when investing through trust management for investors with little experience than when independently selecting assets and investing money in them. Especially in the case of foreign real estate. But it is still worth considering that investment in objects in the UAE market takes place in a currency, and the dirham is strictly tied to the dollar. Therefore, everything that happens with the dollar will happen with the dirhams.

Relative risk is the probability of a fall in the value of objects in the UAE real estate market. Especially in the Dubai market, which is developing in leaps and bounds: at first it is growing rapidly, then there is a period of calm. But now we see no reason to expect a fall in the value of objects: the prospects of the market are great and we expect its continued active growth.

Why the fund started with investments in the UAE

In the Middle East, it is the Arab Emirates that is the most actively developing region. The authorities have grandiose plans for the improvement of the UAE, the number of real estate objects put into use, infrastructure development, and attracting expats to the country.

In addition, the UAE is already not only an oil state, but also a hub for international transportation, for real estate investments, and for banking operations. The Emirates are becoming a new center of the world in terms of financial flows. And this encourages a large number of people to move to the UAE, attracts large capitals to the region, which in turn becomes a driver for the growth of the UAE real estate market.

A distinctive feature of the UAE for investors is the high interest rate from renting: according to our data, it is at the level of 6-8%. For comparison, in Europe this rate is only 2%. Accordingly, investors who want to place money at fixed interest rates are actively buying real estate in the UAE, because in other civilized countries such rates are much more difficult to find.

While the main point of attraction for investors is Dubai, and other countries are drawn to it, they strive to be like it. They carry out a similar policy on urban planning, on attracting capital, investors. Rates in neighboring countries are also good: in Bahrain, for example, they are now at the level of 9-10%. But compared to Dubai, the risks will be higher.

Prospects and plans

Now it is possible to invest through the Kalinka Real Estate Consulting Group fund and Alfa Capital Management Company only within the UAE. But if we see a good demand for the product, it will be in demand and will work as we planned, we will begin to expand the line.

Saudi Arabia is expected to develop actively in the coming years, and it would be interesting to give investors the opportunity to invest in this country. It will have great opportunities and prospects when it opens up for foreign investment. We believe that this will happen next year, and we will begin to actively sell the objects that are being built there.

It is also possible to expand to the nearest countries of the Persian Gulf. It is possible to connect Thailand and Bali — we see demand from our customers for these destinations, and they are very interesting. In Bali, for example, you can get a yield of 15-20% from renting out real estate.

Therefore, while we are watching how the situation with investments in the UAE will develop, how the fund will work, and then we will decide on expanding opportunities for our clients.