Dar Al Arkan Chairman rules out debt issuance at present

Yousef Al-Shelash, Chairman of Dar Al Arkan

Dar Al Arkan Real Estate Development Co. has healthy liquidity and does not have to issue bonds or sukuk at present, Chairman Yousef Al-Shelash told CNBC Arabia.

The issuance of bonds or sukuk will be burdening for the company, compared to bank loans. However, the company has to issue debt, as banking finance for Saudi real estate developers is almost rare, to cushion against the potential risks of this investments.

Dar Al Arkan will pay $500 million issuance next year, after which it might study a new issuance, Al-Shelash said, adding that it is early to take this decision, and many variables will be taken into account.

The company has adopted a conservative policy since the 2008 global financial crisis, to provide liquidity for most of the projects despite possible finance for off-plan units.

Meanwhile, asset maximization requires a conservative cash policy. The company should sit on sufficient liquidity, adopt a conservative policy to invest in its projects and shows keenness to finance these projects in a way or another.

“Dividend distribution is a solid policy that we hope to adopt. Dar Al Arkan had earlier distributed dividends. However, in the current stage, we focus on our growth. Dividends impact the growth of the company and real estate developers in general,” Al-Shelash noted.

“If the company managed income-generating assets, it would retain some funds and distribute annual dividends with zero growth,” he added.

Dar Al Arkan is growing, the chairman affirmed, adding that the Saudi real estate market is also seeing high growth. It is better for the company’s future to seize available opportunities.

On the other hand, Al-Shelash affirmed that there is no dividend recommendation for the next year, adding “The decision whether or not to pay dividends is based on the available liquidity and project status.”

The current period is deemed an opportunity for all developers in the Kingdom amid economic recovery and government spending. The real estate industry is witnessing growth in prices and size in Riyadh and Jeddah. He also expected the industry to grow in Makkah after the COVID-19 pandemic that hit construction costs and profitability.

Significant growth will be seen in the next three-five years driven by the government approach, Vision 2030 and demand for residential units.

Al-Shelash concluded that there are two types of investment. A fixed-income investment through the ownership and lease of residential or commercial units, with a return ranging between 6% and 10%. The second, is the return on real estate investment which is better, but with higher risks. These returns reached 40% and 45% earlier, but fell to 15% in 2016 and 2017 ahead of recovering to 20% and 25% again.