Damac Real Estate Development Ltd. is bolstering Dubai’s drive to lead the global Islamic economy with serviced apartments that are Shariah-compliant from their financing to their restaurants and saunas.
Abu Dhabi Islamic Bank PJSC is managing the project’s funding as Damac, which issued its debut sukuk last month, sells the certified Islamic residences, Niall Mc Loughlin, the Dubai-based developer’s senior vice president of communication, said May 12. The company’s Constella property will have segregated swimming pools and gyms, separate floors for women and won’t serve alcohol or pork.
Damac is benefiting from Dubai’s real estate- and tourism-led economic recovery, with the government predicting property prices will surge as much as 40 percent this year. The emirate’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum, set a three-year timetable in October to become the capital of the Islamic economy, seeking to overtake centers such as Malaysia.
“This is entirely consistent with Sheikh Mohammed’s statement to make Dubai the center of the Islamic economy,” Afaq Khan, chief executive officer of Standard Chartered Saadiq, said by phone from Dubai yesterday. “More clients are seeking Islamic solutions. It’s been building up across the board, including in real estate.”
Shariah-compliant financial assets total $1.21 trillion globally and are expected to reach $2.67 trillion by 2017, according to a PricewaterhouseCoopers LLP report in July.
Damac is responding to rising investor demand for Islamic products, Mc Loughlin said in e-mailed comments. Islamic hotelier R Hotels said last year it plans to spend 1.5 billion dirhams ($408 million) on its expansion, which include building a hotel on Dubai’s man-made palm island.
“A Shariah-compliant offering isn’t a bad idea,” Sanyalaksna Manibhandu, an analyst at NBAD Securities in Abu Dhabi, said by phone yesterday. “Dubai is so well visited by a variety of people, and some of the Muslims who come here are strict. There’s room for a stricter segment in the market.”
The emirate, which is set to record the fastest economic growth since 2007 this year, posted an 11 percent increase in tourists last year. Dubai plans to lure 20 million people a year by 2020, when it hosts the World Expo, from 11 million in 2013.
Damac’s profit climbed 79 percent in the first quarter to $210 million as it sold properties in Dubai, it said in a statement yesterday. The company sees “solid levels of demand in the luxury market” and plans to deliver as many as 5,000 units this year.
Not everyone is as bullish. The International Monetary Fund last week urged the United Arab Emirates to enact more measures to curb real estate speculation and prevent an “unsustainable” jump in property prices. Real estate values dropped as much as 65 percent from their peak in 2008 after the global financial crisis tightened credit.
The yield on Damac’s junk-rated Islamic notes due April 2019 fell two basis points since they began trading April 3 to 5.23 percent at 5:45 p.m. in Dubai. That compares with a 17 basis-point decline to 4.20 percent in the yield of Middle East sukuk, according to JPMorgan Chase & Co. indexes.
Damac this year started work on projects, such as Trump Estates, which includes 104 villas and mansions, and luxury serviced apartments at Dubai’s new airport.
Economic growth will sustain demand for residential and hotel properties, Damac’s CEO Hussain Sajwani said in yesterday’s statement. Hotels and serviced-apartment projects represent about 40 percent of our total pipeline, he said.