Dubai Set to See Its First Residential REIT Amid Falling Prices

Emirates REIT (CEIC) Ltd. plans to start Dubai’s first residential real estate investment trust as falling property prices boost potential returns from rental income.

The new trust is expected to start operating later this year or early in 2016 depending on regulatory approval, Sylvain Vieujot, executive deputy chairman of Emirates REIT, said in an interview Tuesday.

“When we looked at residential before, it was expensive,” Vieujot said. “Now the whole market has come down, but at the buildings we are looking at, we don’t think rents will drop significantly.”

Dubai’s rental market has remained strong even as home prices fell the most in the world this year. Rents declined 1 percent in the year ending in August compared to a 10 percent drop in selling prices, Jones Lang LaSalle Inc. said in a report today. JLL predicts home prices will continue to decline this year and into 2016 as government rules tightening mortgage lending and stronger dollar damp demand.

Vieujot is planning to spend as much as 2 billion dirhams ($544.5 million) buying entire buildings in Dubai and within investment zones in neighboring Abu Dhabi over the next two years. He is expecting an annual net yield of around 9 percent to 10 percent.

Emirates REIT (CEIC) Ltd., which listed in 2010, owns properties valued at 2.1 billion dirhams including schools, offices and retail. The company, which is listed on Nasdaq Dubai, plans to invest 1 billion dirhams over the next 12 months, he said.