Cayman Islands-based Mayfair Wealth Management has launched a US$50 million Shariah-compliant distressed property fund in the United Arab Emirates.
The fund aims to take advantage of the falling real estate prices in Dubai and Abu Dhabi by investing in under-valued properties.
“We have identified a significant opportunity that stems from the slowdown in the UAE property market, one that will breathe new life to under-valued but potential-laden projects in the country,” the firm’s chief executive Amani Choudhry said.
Mayfair expects the fund to deliver an annual return of 12 per cent to 15 per cent from leasing and rental income.
The real estate market in Dubai and Abu Dhabi did not escape the global financial crisis and both property prices and economic activity in the region have declined.
High borrowing costs and a lack of credit restrict UAE’s real estate market and cause a continued widening of the supply-demand gap according to local real estate research firm and investment manager Landmark Advisory.
The company wrote in its latest report on the region that average house prices in Dubai declined by 44 per cent since their peak at the end of 2008. Residential properties prices in Abu Dhabi started to fall three months earlier and experienced a sharp drop of 46.7 per cent in the first quarter of 2009.
Since then the decline in property prices has slowed, Landmark Advisory wrote.
However, commercial properties continue to be affected by over-supply.
In a report on the country Saudi America Bank expects the United Arab Emirates’ gross domestic product to contract by 1 per cent after near record growth rates of 7.4 per cent in 2008.
Mayfair said the distressed property fund would be arranged as a Shariah-compliant musharakah structure and come in the form of Real Estate Musharakah Notes.
Musharakah, which translates as partnership, is a business agreement under which several investors contribute capital to a specific project and share the profits of the venture.
Musharakah, in its various forms, is an often used financing technique, based on Islamic principles, which prohibit making a profit on interest from loans.
The fund is available for subscription until 31 August with a maximum tenure of 36 months at $1 per share, the company said.