Distressed property assets buy up expected by end of year in UAE

International real estate investors are expected to boost the market in the Gulf region by buying up distressed property-backed assets by the end of this year, it is claimed.

This will get things moving and the purchase of distressed loans and other assets backed by property would unlock capital that could be deployed on infrastructure projects and help banks boost lending, said Georges Makhoul, head of Middle Eastern and North African operations at Morgan Stanley.

'Once you see distressed funds coming to the market and picking up whole portfolios from developers and banks then you know we are on the mend. That is the way bubbles clear themselves. I am waiting to see that, he explained.

Assets targeted by international investors could include loans backed by property, property-associated debt and mortgages. 'Once you can establish a price where someone is willing to take over assets, you create a market and people trade that stuff. There will be good opportunities for people to make returns on that and to clear the remnants of the burst,' he added.

One of the reasons for the decline in property prices has been the withdrawal of lenders from the market. However, the purchase of distressed loans could re-energise lending because it would provide banks with fresh funds to make up for the losses.

However, not all analysts are optimistic although some banks are already relaxing some of the more stringent rules they applied to real estate financing.

About one third of UAE banking assets are tied to the property industry. Makhoul said he expected the first round of distressed asset-buying in about six months but warned that the bubble could take three years to clear itself. 'People will start buying when they realise the economy is turning and when they see how they could potentially re-sell these assets,' he said.

'We are in the trough of the real estate bubble. But I don't think the market has bottomed out yet,' he added.

There is already interest from international buyers in distressed assets in other troubled real estate markets. Last week Investcorp, the London and Bahrain listed alternative asset manager that previously owned Tiffany and Gucci, bought individual loans and senior debt backed by US commercial property.