SALAH NOORUDDIN of Investate

UNITED WORLD: How did the idea of establishing Investate come about and why did the strong group of shareholders from all over the GCC choose Bahrain as their base?

MR. SALAH NOORUDDIN: That is a very good question to start with. By profession, I have been a banker for 20 years. In 2002, my friends and I had set up the International Investment Bank in Bahrain. At that time, in 2003, the situation was totally different from today. Oil prices were in their low 20's and we were on the verge of a war in Iraq, political instability was in the high side. The idea of establishing a bank at that time was unique because we were the fourth or fifth Islamic investment bank. With the growth that our economies have experienced with increased oil prices, now a lot of banks have mushroomed. Bahrain is right now an attraction. It has been a financial centre, and recently a hub for financial institutions. In total, Bahrain has more than 400 financial institutions.

Now, the story of how Investate came about is interesting because real estate has done exceptionally well over the last 5 years. Prices have quadrupled in many situations. Most of the Islamic investment banks have ended up focusing on real estate, mainly in the region because the appetite for investment has increased over time, so they launched a series of mega projects. That was led by the momentum created by Dubai. So we had a number of banks doing special projects in Bahrain, such as Durrat Al Bahrain, Amwaj Island, Bahrain Financial Harbour, Bahrain Bay, Reef Island, and many more. The same is happening in the region, in Morocco, in Saudi, in Jordan.

International Investment Bank was also involved in this euphoria. But I realized that although everyone was doing well, banks were tilting towards being developers themselves, assuming huge projects themselves although they were banks. There were concerns, even by the Central Bank and the investors themselves, on how we can deliver and execute the projects.

I decided to create Investate, which is basically an investment banking experience in the management put together with some of its shareholders who are really developers. The aspect of the business that concerned everyone - execution and development of real estate projects - was covered by our shareholders. It was basically a merger between me and the Chairman of Omniyat Properties, one of the top 3 private development companies in Dubai.

If you divide Dubai into two, you have the government and quasi-government developers, like Nakheel and Emaar, and then you have the private, one of which is Omniyat. So we put together my view and vision about how to understand this real estate business, and the concern we had about how to create an entity like Investate with a competitive advantage over others, in terms of its ability to execute real estate projects that it brings to the market. That was the essence of Investate.

In addition to Omniyat, we have added other shareholders, selected very carefully - key land bank owners; real estate-concerned families in Saudi who have huge land masses we can tap into; strong financial investors, like Kuwait Investment Company, which is 70% owned by Kuwait Investment Authority; and Omniyat. Now, Omniyat is acting as our preferred developer of choice. Every time we come up with a project, they have they choice to bid for it and act as the developer, as they have a vested interest. They own 30% of Investate, so that is a win-win situation. That is in terms of the corporate structure and how we have designed Investate to be a leading real estate investment company and to differentiate ourselves from the rest.

Now, what is our focus, what do we do, and how do we do it is another thing. You may ask me this later, but I preempt you because it is connected with what I just said. We have seen many development projects in the region, but if you look at them, some are special projects designed to cater to a certain category of people, high-end people. Now, that is fine but again, taking a closer look at the situation here, not just in Bahrain, but in the region as a whole, the real estate business in this part of the world is different from the real estate business in America or Europe. There, real estate is dictated by the housing market. Here, it is dominated by special projects. But the housing market is the real thing. We have a vision at Investate. We are committed to transferring the real estate business in this part of the world towards housing.

For example, if you are coming from Europe or the U.S., it is your legal right to own a home. So the environment there has been facilitating this in terms of regulation, mortgage loans which give a person the ability to tap into to acquire a home. There is depth in the mortgage market, and there is depth in the real estate home market. This is non existent here. Home ownership is very low. In Saudi, less than 25% of Saudis own their own homes, against 75% in U.K. Mortgage lending in this part of the world, in particular in Saudi, represents less than 2% of GDP. In the U.K., it is 75% and in the U.S. it is 70%. You can see a huge gap in the nature of the business here and there, between developed and emerging countries. Our focus is to play a role in that aspect of the business, in housing.

We started with some special projects, as there are still opportunities in that area. We have done two in Dubai, one in Bahrain in the Financial Harbor, and even in Saudi. But alternatively, we will settle on focusing in the middle income housing because we believe it is a deep market and one we can go into frequently and be successful in. If we can create a good framework here in Bahrain, we can replicate it in Saudi, Egypt, Morocco, and the region at large. Basically, this is our mandate and our vision for the real estate business.

UNITED WORLD: From what I understand, with the strong focus on the housing market, you want to reach the end-users. We see other real estate projects parcel up as much land as they can to get bigger profits. There is a large degree of speculation involved, whereas in your projects, you seem to really want to reach the end-user?

MR. SALAH NOORUDDIN: Yes, that is because there is a social benefit for the people. It is not just a commercial or financial project; we want to contribute to the stability because with the housing business, if you involve the people and increase house ownership you make them ride the wealth creation wave. As prices increase as they have, people feel more settled. It has political, economic and social benefits. We want to take advantage and be part of that. Having said this, we are telling the people that if we are going into this business, we have to make sure we can deliver and execute the projects. We are bringing the know-how of Omniyat and investment banking to create that credibility.

Also, our focus is on the real estate value chain - upstream and downstream. So when you deal with a development, if you do not provide financing to the end-user to buy the home, then you are not providing the full solution. We have to focus on the mortgage finance business, and entering into that business is part of our strategy. We will create the mortgage finance business and associate with key partners depending on each country, in Saudi with one, in Dubai with another, and so on. This is the downstream.

With upstream, we talk about building materials and industries relative to real estate. There is pressure on building materials which are scarce - steel, glass, etc. So wherever there is potential to foster these industries, we will do it. In every aspect of this, we have a key shareholder who will help us.

UNITED WORLD: Can you tell us about the ongoing projects you have, and the ones you have in the pipeline?

MR. SALAH NOORUDDIN: We were established in October 2007 and we closed a deal within 2 months, which enabled us to show a $11 million profit. It is called the Waterfront in Dubai, a $435 million waterfront mixed use master plan. It is a 50% project with Omniyat and supported by our shareholders. Omniyat has put the project together and we will officially launch it in May.

The second project is also in Dubai, called Investate Business Bay in the Business Bay. We have pre-launched the project and we have already sold 75% of the building off-plan, even before we started. This is very interesting, it only happens in Dubai!

Now we want to do something in Bahrain. Although housing projects is one of our key sectors, we wanted to start with a big bang project so we can make some noise. The next project we are going to present is our iconic Tower in the Bahrain Financial Harbour. It is one of the two spots of land left there. The Bahrain Financial Harbor Holding Company was keen to bring in a company like us, who had a strong developer like Omniyat on board. It is one tower of mixed residential and retail high-end development. It will be Omniyat's first project outside Dubai. They are going to make sure it is done to perfection.

UNITED WORLD: After these 2 markets, which country will you target in the region?

MR. SALAH NOORUDDIN: Saudi is a big market, one that we have to focus on because it has a need for housing solutions. Also, in Bahrain the Government is doing a lot to build complexes for the people in the North, and the financial sector has to play a role to promote this. We are going to do that. We will have talks with the Government at different levels over the next few weeks to help it address the housing issue.

UNITED WORLD: What is the reason behind Saudi having only 25% home owners?

MR. SALAH NOORUDDIN: It is not just in Saudi, it is everywhere. There were no policies addressing housing. In the past, and until now, housing is the responsibility of the government. Now, the demand for housing has grown so much that the government cannot keep up. They tried to involve the private sector, but the regulations and policies were not there. For example, mortgage financing was not available. Banks were not giving housing loans to people, they were only doing consumer lending. They were handicapped in doing that. Now, Saudi is passing a new mortgage law because banks were very reluctant to lend to people long term because foreclosure was an issue and things related to repossession were not advanced and regulated as in the U.S. or Europe. Here, if the bank lends and the people default, they cannot do anything about it.

UNITED WORLD: In this regard, what do you make of the reforms that we are seeing in mortgage law - the guarantee system and securitization?

MR. SALAH NOORUDDIN: All that has to come. The system that you have in the U.S. is so advanced and meant to address these concerns of the financial institutions. This business know-how is something that will come to this region, and we want to be part of it, to contribute to the development of the securitization business. We still have not started that, we are 30 or 40 years behind the mortgage law of the U.S. The government is aware of this, as are private sector companies like us. There is room for all this and we have a long way to go.

UNITED WORLD: What is the home ownership percentage in Bahrain?

MR. SALAH NOORUDDIN: I do not have the statistics, but it is quite low. Now, it has become more prohibitive for Bahrainis to own homes as a result of speculation and the abundance of liquidity. We have a lot of cash in the market because of low interest rate requirement and the link to the U.S. dollar. Monetary policy is fostering easy money, and it is being directed to speculation in land. That is making it difficult for developers like us to go to the business of home ownership. Bahrain has been shifting to high rise. It is more acceptable to live in apartments, and Bahrainis are accepting it. This is one of the solutions. Another solution is for the government to give out new land at prices which are affordable.

UNITED WORLD: In your opinion, what will be the main challenges that Investate will have to address in the coming years to establish itself as a market leader?

MR. SALAH NOORUDDIN: These times are full of opportunities for us. First of all, the rules and regulations are being implemented. We believe this is where the government is going. You met Mrs. Sabah Almoayyed - she was instrumental in changing the mentality in the Housing Bank, advising against cheap loans, and encouraging guarantees and the private sector to enter the market. In Saudi it is the same. In Morocco they are actually more advanced than us because of the French influence. We want to be part of that educational process. We have a vision and we know what we are doing.

UNITED WORLD: Of course, to make that vision true, you will need to build a strong human capital within the company…

MR. SALAH NOORUDDIN: Human capital is no exception on the general strain on resources we have seen. With the growth in this part of the world, especially in the Gulf and Indian sub-continent, it has been difficult to find adequate and qualified human resources. Wages have been increasing. We are attracting some people because they believe in what we are doing. Like any other investment company we try to demand certain skills and today we try to attract and retain qualified people. When we move into the Financial Harbor, by October, where we have 2 floors, we will have space for 120 people and by the end of this year we will be about 70 people in the company.

UNITED WORLD: How do you train these people and imprint them with the vision of the founders?

MR. SALAH NOORUDDIN: Very good question. I have been talking to specialized trainers in Bahrain to structure a training program for us that every individual will have to go through, so they will understand our vision. Even when people leave us for other institutions, we will be proud of them going through our training, we want to contribute to the industry as a whole.

UNITED WORLD: What are the main challenges facing the new generation of business leaders in Bahrain?

MR. SALAH NOORUDDIN: They will have a different platform, as the dynamic of investment banks has changed from the late 90s, and that is because of the advent of some young entrepreneurs and visionaries. They are really making their mark. I can tell, they are more open minded and fast, speed is everything. We can see in Bahrain some old fashioned organizations still exist and they still follow the same line, and they have not grown bigger than what they were.

UNITED WORLD: It appears that the Islamic investment banks have stronger commitment to the region than the conventional banks in the past, which leaned more towards investing their money in other countries. One of the strengths of the new generation is a strong commitment and vision to realize the potential of their own countries…

MR. SALAH NOORUDDIN: That is very true. In the 80s, the trend was very different but after 09/11 and the rise of oil prices, a lot of money has been remaining in the region. Still the bulk of it is invested outside, because here there are not as many venues for investment as there are there. This money is going towards real estate, or the stock market. Some is going into new industries so yes, relatively more money is being invested here than in the past.

In the past, we also relied on a number of expatriates. Now the leaders and the main stakeholders of our companies are nationals, and they have been doing a good job. They have definitely contributed to the growth of the economy. If you go 5 or 10 years back and tell me Bahrain would be having all these projects, I would of said it is a dream. When Gulf Finance House started the Financial Harbor, nobody believed in it when they announced it! Now we have 5 or 6 projects like that. This is the vision of the young leaders.

UNITED WORLD: What are the main threats to the sustainability of this vision? Do you think a reduction in the price of oil would have an effect on the amount of development we are seeing?

MR. SALAH NOORUDDIN: First of all, there have been a number of structural changes in the global economy. One of them is the oil price, which I do not think will go down again to the 20's and 30's. If it corrects, it will correct to $70 or $65. This has been driven by the growth of China and now even with the fear of a recession in the U.S., it has not stopped the oil from hovering around the $110 bench. Definitely with the structural change, oil prices will remain high and so the influx of money into the economy will continue. Now we have a lot of liquidity to spend, as is clear by the sovereign funds getting richer and richer investing all over the world.

We have been through a number of crises, the war in the 80s and 90s, but now we are immune to these kinds of crises. In fact crises create more opportunities, and more opportunities are good for business. Nothing worse is going to happen than what is happening in Iraq, for example. Fundamentally, the economies of this region are going to be rich, and they are going to grow. In the next 5 or 6 years, the situation will be pleasant.

UNITED WORLD: Some analysts say that real estate has become a surrogate for the stock exchange, as people prefer to invest in a more secure and tangible asset. In addition, there is a feeling that real estate only goes in one direction…

MR. SALAH NOORUDDIN: As I said earlier, there are two main venues for investment - the stock exchange and real estate. The stock market is more sensitive to growth and liquidity. The first stop for that liquidity goes into the stock market. The stock market precedes potential growth. For example, in 2006, the stock market was booming, it reached levels that were above international standards and then they corrected. However, they corrected at a time when the economy was going up and gaining momentum. So, it is more sensitive, prices adjust very quickly to the prospect of the economy growing.

Today, I see the prices in the stock market are very attractive, and it is picking up gain. The private sector is operating at full capacity. Two years ago, the market reacted to these signs, then it corrected, but it is picking up again. In 2006, when the market corrected itself, the money shifted to real estate, and real estate boomed. Due to the boom, prices are not affordable for the average Bahraini. If real estate suffers a correction, the money will go back to the stock market. So the governments of these countries really have to open new venues for investment.

UNITED WORLD: What is the legacy that you want to leave in Investate by the time you pass it on to your successor?

MR. SALAH NOORUDDIN: It is also about the social aspect of our business. Every organization is about creating and maximizing shareholders' value, but I will do that in a way that will contribute to the community. I am excited about what you are doing because it will help. In 8 years time, I will be proud to say I was a leader and instrumental in building the housing market in this part of the globe. Just like unemployment is a concern, housing is also an important issue. When Investate can provide solutions in this line, I will be happy to retire.

UNITED WORLD: As a banker, what aspect of real estate do you enjoy most?

MR. SALAH NOORUDDIN: As a banker, it is nice to structure these projects to meet my investors' will. It takes time to plan and execute. All these investments are very sophisticated and I am pleased, as a banker, that I have a machine like Omniyat which can make these projects a reality. I always tell people I am a financial engineer, not a civil engineer. As a banker, I can put investments together and structure them in real estate, but I leave the rest to the engineers.

UNITED WORLD: Is there a final message you would like to send to the readers of the USA Today?

MR. SALAH NOORUDDIN: I believe this part of the world is on the verge of entering a new definition of real estate. Real estate is a necessity of life - everything is real estate.

UNITED WORLD: Mr. Noorudding, thank you very much for your comments.