Alliance of Emaar, Aldar to drive up consolidation
The announcement of Emaar and Aldar to enter into a strategic alliance reaffirms the wave of consolidation that has been taking place in the developer market since the latter half of 2017. This trend had already started manifesting itself in the form of joint ventures done previously at the GRE level (Emaar and Dubai South, Emaar and Meeras, etc), and was a trend that had started in the private sector as smaller developers coalesced in order to compete more effectively with their larger competitors.

Given that the bulk of the registered developers in Dubai (numbering approximately 400, rather than the commonly quoted figure of 1,200) have developed single projects, it was logical for there to be some consolidation to have taken place. Off-plan sales were being increasingly spurred by post-handover payment plans that were exerting pressure on developer margins.

In Abu Dhabi, the number of developers is lower, but that has also been logical given the currently smaller size of its freehold market (which is also undergoing consolidation). This trend is likely to increase now with the 2 largest players now entering into a formal alliance to develop not only national, but international projects as well. For the investor and the end-user, this has 2 important implications.

First and foremost, this will result in a greater visibility of the supply pipeline, as the number of projects announced will take a dip once developers start to consolidate. More importantly, however, the resultant survivors will have a better financial dynamic in order to be able to demonstrate financial close, without the undue delays in handover that have been the norm thus far. This allows for investors to get a better gauge on market dynamics (the key worry that analysts have been wringing their hands on have been the projected avalanche of supply that has somehow never come to fruition on a year-over-year basis since 2011).

In a rapidly urbanising real estate marker, ascertaining the supply pipeline becomes very important for the medium-term investor; it is curious that analysts have repeatedly tripped up on this aspect, and part of the reason has been the sheer number of developers that have been registered. Now that the consolidation is well and truly underway, supply forecasts will improve dramatically.

Secondly, and perhaps more importantly, the strategic alliance will compel the survivors to step up the build quality as Emaar and Aldar will “cross fertilise” across the 2 emirates at all price points of the spectrum. This alliance will allow investors greater choice, with the key dynamic of higher build quality, implying that the worry of “ghettoisation” of communities on account of poorer build quality will not be the norm.

If anything, this quantitate removal of developers itself will exert a check on the supply dynamics, and even as post-handover payment plans are progressively reduced (which is inevitable over the next year), the demand curve is expected to increase as worries about supply and project delays start to dissipate.

In Abu Dhabi, the entry of Emaar will likely lead to a widening of the investor base and interest, while Aldar’s entry into Dubai will ensure that price curves at the trophy end of the market may well incline further upwards. Regardless of the pricing strategy, it is clear that the alliance will lead to a spurting of consolidation activity, and along with it, an acceleration of any industry norm of “scaling” ever upwards as the industry starts to mature.

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