Posted by: Pradeep | February 5, 2009

DMHS – what is the payback on investment

I was just wondering when this new campus was envisaged what payback GEMS management might have considered for return on investment? Normally when we buy or invest in real estate the return on investment is never more than 10% per year. Look at rentals what you receive on your real estate investments.

If I believe that AED 240m has been invested by GEMS on this facility then the expected return should never be more than AED 24m per year. What is the rental they are paying for present premises? I have no clue but fact remains the rise in fees due to any rise in cost should be limited to difference between AED 24m and present rent. If present rent is more than AED 24m then only fees hike is genuine otherwise even present fees should be reduced.

It leaves another question if rental is less then why to shift to new premises? The development plans for the present locations are already buried and no properties would be demolished. 

Looking at the fees hike it seems GEMS wants this property investment to be recovered in 2yrs time frame itself. I fail to understand what business plan review education regulator did while approving this fees hike?

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