SMEs could drive the UAE’s real estate growth

DUBAI: With small and medium enterprises (SMEs) accounting for approximately 80% of the United Arab Emirates’ economic activity, SMEs could drive demand for both office space and affordable residential property in the country provided they are able to secure bank loans to finance their business and provide working capital and investment for growth, said an industry expert in a press release from IIR Middle East, the organiser of Cityscape Dubai dated Oct 7.

Mohammed Nimer, CEO of MAG Group Property Development said collectively, SMEs employ a large number of staff and require commercial, office and industrial space and housing for employees. However, SMEs are hindered by a lack of liquidity.

“Imagine the stimulus to the housing market alone if each SME averaged just one new employee per annum, not to mention the benefits to the wider economy – airlines, hotels, restaurants, shopping and so on,” added Nimer.

The Dubai Chamber of Commerce said SMEs are facing difficulties securing credit from UAE banks and if they do, the terms are usually only for three to six months. Adding to their woes, the interest rates for unsecured loans are averaging around 15% due to their perceived high-risk category. 

Based on a Dun & Bradstreet report, loan rejection rates were in the range of 50% to 70%. The loan rejections are partly due to the banks having a difficult time gaining access to accurate financial statements. In rare cases, some banks face the complex and time-consuming process of liquidating seized assets or recovering money.

While the government’s lowering of minimum investment level for the formation of a company should be praised, banks must relax their lending criteria more in order to unlock the potential of the SME sector, said Nimer. He believed SMEs are the backbone of many developed economies and are the key to real economic growth in the UAE.

“It is interesting to note that SMEs are responsible for 30% and 28% of the US and Japan’s exports respectively. China’s two million SMEs have greatly increased their exports and Toyota depends on SMEs to produce 80% of its car parts,” added Nimer.

Nimer also lauded the government’s initiatives to improve transparency and regulations. “The Dubai real estate market in particular has witnessed the more unsavoury side of property development. Financial irregularities, land ownership disputes, cancelled and delayed projects and poor quality finishes,” he said.

Nimer stressed that liquidity remains the root of the problem and would continue to play a critical role, as owner-occupiers will still need mortgages to move forward.

According to Ruwad Establishment, a government body that provides assistance and direct financial support to SMEs in the UAE, there are over 260,000 trading and industrial companies in the country of which over 200,000 are SMEs. Companies with less than 100 employees with an investment range of between AED200,000 (RM184, 500) and AED2 million are classified as SME in the UAE.

MAG Group Property Development is the property arm of the Moafaq Al Gaddah (MAG) Group of Companies in the UAE. MAG has a property portfolio in excess of AED3 billion and was one of the first developers to create Escrow accounts for all of its projects. In October 2008, MAG Property Development was awarded the ISO 9001 certification by risk management company Der Norske Veritas.