Following a 40% first year increase in underlying property assets within its development fund, UK-controlled Caledonian Investments (Gulf) Limited has launched an income fund for UK investors to take advantage of the exceptional yields in the Dubai property market.
With a minimum investment of £50,000 over a five year term, the fund will pay a dividend of 7.5% after year two as part of a budgeted annual return on investment in the region of 15%, although the management team is confident that far greater returns can be achieved.
Caledonian's chief executive Ian Russell said: 'Given that we have already achieved in excess of 25% in our development fund based purely on equity financing, I genuinely believe that annual returns of 25% are more than achievable in an income fund, coupled with the introduction of debt finance. Caledonian has consistently achieved annual returns in excess of 30% per annum over the last six years, so our track record speaks for itself.
'Our decision to launch the fund at this time is reinforced by a recent report by HSBC that both residential and commercial supply is not expected to meet demand in Dubai until 2015, and the present double figure yields are more than sustainable during that period.'
The success of the business is attributed to the combination of an experienced team of specialists from Dubai-based Caledonian and the alliance with a major Middle Eastern property development company, Al Mazaya Holdings, which is listed on both the Kuwait and Dubai financial markets.
This alliance gives the business a competitive advantage as it has access to investment opportunities not readily available to overseas investors. Both Caledonian and Al Mazaya have in-depth knowledge of the Dubai property market and a network of high level contracts established over a number of years. This results in them often having access to proposed initiatives before they come into the wider public domain.
Caledonian's Ian Russell also has extensive personal experience of the region and has been based in Dubai for 10 years. He now operates the Caledonian companies from its offices within the prestigious International Finance Centre. Previously he established RD Investments, an Edinburgh-based property partnership with residential and property interests, in 1984 but since 1997 he has operated his business interests from Dubai.
'Much of the recent focus for developers in Dubai and the Gulf region has been on five-star hotel and leisure accommodation,' he said. 'We recognised the considerable untapped potential outside that sector and our investment strategy is focused around essential infrastructure development opportunities in the region.'
Directors are so confident in the fund that, as they did in the previous development fund, they will co-invest in the income fund on exactly the same terms and conditions as other investors. The Caledonian board of directors has a wealth of experience in property investment and has included John Kennedy (chairman) of the Kenmore Property Group, Keith Murdoch, Chartered Accountant and Partner in Springfords, David Alexander (non-executive director), owner of one of Scotland's largest residential letting agencies with offices in Dubai, Keith Cox (non-executive director), based in Dubai and joint owner of the PK Group which specialise in five-star short-term holiday lets in Dubai, and Scott Doak (non-executive director) who is currently chief financial officer at Lamprell, a UK AIM-listed company, and is based in the Middle East.
The intention is to create a $100 million USD income fund to invest in completed residential and commercial projects in both Dubai and the United Arab Emirates. Caledonian Investments (Gulf) will invest a minimum of $10 million USD, Kuwaiti listed company Al Mazaya Holdings will invest a minimum of $10 million USD and an investment bank, the Access Group, will place a further $80 million USD in Dubai. The Access Group will then introduce a further $100 million of debt finance to raise the fund to $200 million USD.
The fund will primarily invest in completed stock which will be held for rental yield. Rental yields are currently in excess of 10% in the Dubai market.
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