It is a pivotal year for Dubai. With $1.5bn-worth of buildings hitting the market in the first six months alone, the emirate continues to see a surge in project deliveries, triggering concerns that the hitherto demand-oriented market may be heading for a reversal. About 105,000 residential units are due to come on stream by the end of next year, leading to an oversupply of 33,000 units by 2008.
That is the one big cloud looming on an otherwise sunny real estate scene, with the resident expatriate and overseas investor buying spree showing no signs of abating.
The promulgation of the new Dubai Property Law in March caused a six-month surge in demand for local real estate at a time when available property had been in short supply. The confidence-boosting law sent prices in the residential and commercial sector up by 10%.
Land and property worth $21.8m were sold in one week alone in August, while total land transactions reached $978m in July, 34% higher than in June. Leading developer Emaar chalked up record net revenues and profits of Dh5079bn ($1.383bn) and Dh3053bn respectively for the six months to June 30, 2006.
Boom and gloom
Amid the boom remains some gloom: the emerging market still needs to iron out details over property inheritance, compensation for late delivery, the definition of freehold (many contracts are based on 99-year leases) and maintenance of common hold areas.
There are also some curious discrepancies in prices. The price per square foot of villas in places such as Jumeirah and Al Barsha, where only United Arab Emirates (UAE) nationals can own property, is up to twice as much as in the freehold areas available to foreigners.
Denise McGinty, investment director at Dubai-based Leads International Property Investments, believes that 2006 has brought with it a new breed of investor: “Today’s investor is more aware and savvy but also more protected. Dubai is still a relatively immature market so there will still be plenty of room for speculation, but there seems to be a revived confidence in the product. This has directly resulted from more defined laws, transparent contracts and ever critical financial backing.”
Dubai is becoming an increasingly lower investment risk as a result of investors trying to repatriate their money to the Middle East, coupled with the city’s ongoing tourism and financial growth. Developers are offering guaranteed annual rental yields of about 8%, some as high as 30% over three years.
The concerns about over-supply are repeatedly swatted away by the government and realtors, who say the city needs more accommodation as its population expands by more than 200,000 a year. Dubai’s rising sky-high rents – which are meant to be capped at 15% annually but are often subject to the vagaries of landlords – are also increasing the pressure on residents and investors to buy.
The problem is that the delivery of this property flow is subject to construction delays; and the huge new supply has still to come on to the market. When it does – and it may not be felt until mid-2007 – market forces may force Dubai house prices to first stabilise and then fall, creating more sellers than buyers.
In the meantime, Dubai is awash with construction – a quarter of the world’s cranes are located in the city – as developers embark on a race against time to complete large-scale projects.
The Gateway Bridge linking The Palm Jumeirah to mainland Dubai has opened to construction traffic as the vast residential-meets-tourism offshore development enters the home straight. The first phase of the 8800 apartments and villas is due to be delivered at the end of the year.
Nakheel Properties, which has already pumped more than $12bn into offshore and residential developments, launched the 370-hectare Jumeirah Park community in September, comprising more than 2000 three, four and five-bedroom villas. The villas range in size from 1095 square metres (m2) to 1680m2 and prices start at Dh2.4m.
Nakheel recently sold the island of ‘Thailand’ on The World development to real estate sales and development firm Profile for $20m. Profile will develop a $110m Jasmine Gardens resort and land will be available from 2008, with completion in about 2010. The island will house 131 villas, priced at Dh1.8m-Dh11m.
The Jumeirah Beach Residence, whose 36 residential towers and four hotels dominate the Jumeirah skyline, is due to be completed this year. Nearby, Tameer Holding is developing the Dh1bn Elite Residence at Dubai Marina, a 91-storey tower aimed at the luxury market.
Emaar Properties recently launched the sixth and final tower, Delphine, in its Marina Promenade project at Dubai Marina. The 68-unit tower, which contains two and three-bedroom apartments priced between Dh1.262m and Dh1.999m respectively, will be ready by January 2008.
Kuwait-based developer Abyaar Real Estate Development is investing up to Dh5.14bn in Dubai in the next year, which will include the luxury serviced apartment towers Pier 8 and Pier 24 in Dubai Marina.
Commerce remains the premier sector by value, accounting for $833m of the new builds in the first half of this year, followed by recreational ($387m) and industrial/ residential ($297m). However, Dh43bn of residential property is coming on stream next year, up from Dh17bn this year and Dh7.1bn in 2004.
The office market is grappling with shortages, although a lot of supply is being put on the market, mainly in the construction of high-end offices. Work on the high-profile Business Bay in the heart of the city continues apace and the premier commercial district will contain innovative skyscraper designs, such as the 30-storey One Business Bay (each floor increases in size as it rises). Rates at Business Bay start from Dh1275 per ft2 and annual rental income is expected to be about Dh250/300 per ft2 on completion. Work on the creek extension is being carried out in phases and is due to be finished by the middle of next year.
Aspire Real Estate and High Rise Real Estate recently announced the launch of the Dh1bn Jumeirah Wave Business Towers, comprising three 45-floor glass fronted towers and a total of 960 offices, in Jumeirah Village. It is due to be completed by the end of 2008.
Al Manal Development intends to invest about $1.4bn in real estate projects in Dubai during the next three years. The bulk of the investment would be pumped into commercial and residential towers in the Dubai Investment Park. Al Manal is also planning to build two more towers in downtown Dubai at a cost of $136.2m.
The Dubai Outsource Zone has started construction on phase three of the infrastructure for its $200m free zone for the outsourcing industry. Work on the first and second phases is nearing completion.
The Dubai World Trade Centre (DWTC) is adding 15,000 square metres of exhibition space to the Dubai International Convention and Exhibition Centre (DICEC), increasing capacity by 30%. It has also laid the foundation stone for an employee residential project in Ras Al Khor, which will open next summer with 784 residential units for its employees – a strategy that makes sense for big employers in the face of escalating rents.
The Bawadi resort was the biggest standalone tourism development launch of the year. The Vegas-like strip, containing 29,000 hotel rooms, is due to open in 2010. Tatweer, which will put up 40% of the costs, recently set up real estate development arm Mizin to launch a range of projects worth Dh5bn in the next 17 months.
The Al Sahra desert resort was also launched this year: a 12.1 million m2 traditional theme resort in Dubailand that will contain up to 300 residential units.
Total investment in Dubai Festival City has exceeded Dh11bn and key components of the centrally located retail and hospitality project are nearing completion. The number of leasehold-only residential units is expected to expand by up to 2500 each year.
Dubai’s boom continues to confound the critics. The construction sector GDP increased by 166% between 2000-2004 and recorded an average annual growth rate of 27.7%. An estimated Dh1700bn of real estate projects could be in circulation by 2015.