Emaar Properties Companys Entry into Astana

Company Description

Emaar Properties is a company from the United Arab Emirates that provides real estate management and development services. Founded in 1997, it quickly reached the status of the leader in the local market through diversification of activities to hospitality, residential, and commercial property segments. Following a successful IPO in 2000, Emaar Properties quickly undertook several major projects in Dubai, including the artificial canal district Dubai Marina.

The company became a pioneer in its outreach to the international market, offering its shares to foreign nationals as early as 2000. The next successful step in pursuit of the foreign interests was taken in 2004 with the establishment of Emaar International LLC and subsequent outreach to Asia, Africa, the Middle East, and North America. The next year, a deal with Giorgio Armani brand marked the first important milestone in the international arena.

The companys portfolio currently includes several significant projects in the UAE, including the Dubai Mall (the largest mall in the world) and Burj Khalifa (the worlds highest tallest building). The latter has since proven to be the companys biggest financial success, with a reported 80 per cent occupancy in the middle of the real estate market collapse of 2009. Its current list of international operations includes projects in India, Egypt, Saudi Arabia, the United States, Syria, Pakistan, and Turkey.

In addition to investments in commercial, residential, and hospitality sectors, Emaar Properties successfully participates in cultural and social improvement projects, such as the Bibliotheca Alexandrina in Egypt and the Commonwealth Games Village in India. The current list of international projects suggests that the Emaar Properties management intends to expand both to the developed and the developing countries in an attempt to diversify its portfolio and secure competitive advantage through early entry into the viable markets.

SWOT Analysis: Astana

Strengths

Industry segment growth: following the Land Code of 2003, the capital has enjoyed growing interest from international investors. Construction and real estate are currently among the most attractive sectors for foreign direct investment (The World Bank 2017).

Infrastructural updates: the proactive stance towards development and invitation of international capital resulted in major investments in the modernization of the citys infrastructure. Currently, it is compliant with international standards.

Overall socio-economic growth: in the recent decade, the city demonstrated a significant increase in overall income and a sharp decline in poverty.

Diversified economy: the countrys previous reliance on natural resources as a main source of income is rapidly changing towards a more diversified model, which in turn creates a more robust economic profile.

Weaknesses

Low supply: despite the existing growth of new housing in the city, its rate remains insufficient for the combined demands of the local residents and foreign investors. At the same time, the local population exhibits growth, which further strains demand (The World Bank 2017).

Poor quality: most of the available housing was constructed in the Soviet era and is incompatible with modern quality standards. Many buildings require replacement. Some of the newly built houses do not meet quality requirements.

Energy inefficiency: over 60 per cent of homes in Astana consume two to three times more energy than their European counterparts.

High tax rates: currently, a flat-rate tax of rental income earnings is at 20%, and a flat rate tax of capital gains is at 15% for non-residents (Freedom House 2016).

Mortgage lending rates: national banks are reluctant to extend loans for real estate. In recent years, the total loans have increased by several per cents after a steady decline, which is still insufficient for sustaining market growth.

Opportunities

Strategic placement: the country provides a connection between several fast-growing markets, and Astana serves as a commercial and logistical hub. In the long run, such setting contributes to welfare and quality of life of the local population and, by extension, the profitability of the market.

Favourable legal environment: the current laws and regulations present a little challenge for new entrants. This factor is indirectly beneficial for large investors as it opens up the possibility of capital growth and greater foreign capital involvement.

Demand for office space: the growth of the private and public sector in Astana creates a strong need for offices. The citys establishment as the capital was supported by major state incentives, with a large proportion going to the construction industry. The said trend is expected to continue in the long term.

Participation in Affordable Housing 2020: the housing sector modernisation program is heavily funded by the government. At a currently displayed pace, it will provide favourable results in the industry and, by extension, improve the quality of offers.

Threats

Currency instability: the countrys economy is heavily dependent on the dollar, which introduces a great amount of uncertainty. The recent devaluation of the local currency resulted in a substantial increase in real estate prices (Freedom House 2016). While not a major threat to investors, the factor undermines the local populations buying capacity.

Political influence: the ongoing constitutional reform in the country creates a risk of an economic slowdown. In particular, the current real estate renovation initiative, a major investment driver, relies heavily on government funding and support.

Construction industry challenges: despite the recent improvements, the current procedure of obtaining a construction permit is still complex and lengthy, which serves as a serious barrier to market growth.

Insufficient transparency: the current state of procedures in Kazakhstan retains the possibility of corruption and is not transparent by international standards. The situation in Astana is relatively acceptable compared to the country average but has to be accounted for nevertheless.