The emergence of Dubai and the growth in other UAE member emirates is a “tremendous catalyst” for real estate developments in the Middle East, north Africa and south-east Asia, says Blair Hagkull, regional managing director at Jones Lang LaSalle.
In the global real estate sector, Gulf investors used to export capital by buying up property in Europe and North America. “Now the region exports capital and expertise… and the impact of the Gulf real estate investor-developer is being felt across the world,” says Mr Hagkull.
UAE developers such as Emaar and Nakheel are spreading their wings with mega-projects across the region, but they are still very active at home, straining to build enough homes, offices and leisure facilities to cater for the federation’s soaring population. Many more people are expected to arrive in the UAE over the next few years: they will need somewhere to live.
The Dubai Strategic Plan announced earlier this year sets an ambitious target to raise Dubai’s real per capita gross domestic product (GDP), taking account of inflation, from its current value of $31,000 to $44,000 in 2015. This would require a massive 11% annual GDP growth rate. The plan contemplates growth in Dubai’s traditional sectors such as trade and tourism as well as in emerging areas of the economy such as financial services. All this means millions of new jobs.
Some of Dubai’s major property developers have little or nothing to offer people wanting to buy residential property to move into now. In early September, the developer of the Dh5.5bn ($1.5bn) Falcon City of Wonders project – which incorporates buildings shaped like the Eiffel Tower, the Taj Mahal and the Leaning Tower of Pisa among other recognisable landmarks – told fDi it could offer just seven villas. If you want to buy an apartment on Emaar’s popular Dubai Marina development, you will have to wait until January 2008 for one to become available.
“Delivery is key,” according to one Dubai resident who hoped to move into new premises within the month. Construction delays are among several factors to have kept the UAE property supply side shorter than anticipated – and analysts do not see an evening of supply and demand until 2009 at least.
Shortages are not confined to Dubai. In Abu Dhabi, low and middle-income earners in particular are facing difficulties finding affordable housing. As the city’s economy booms and the authorities press ahead with billions of dollars of investments to create new economic activity in the industrial and tourism sectors, housing, particularly apartments, has become very scarce.
Abu Dhabi opened up its property market to non-national buyers in 2005, so it trails Dubai in its building programme aimed at foreigners. Dubai legislated in 2002 to make freehold property available for expatriates in certain designated areas.
Foreigners can buy freehold property in Abu Dhabi too, at Aldar Properties’ Al Raha Beach development. Elsewhere, foreign buyers will have to settle for 99-year leases for the time being. There is talk of Abu Dhabi making some freehold property available in or around the capital city and, as a rule, buyers should consider property laws to be in a state of flux as each of the seven emirates works out how best to manage its real estate sector.
Dubai recently introduced a new law to protect buyers. Developers must now set up an escrow account for each project; buyers’ deposits will be put into these accounts and only released to the developer when properties are transferred. The law provides a safer environment for off-plan buyers and requires developers to obtain a government licence.
The total value of real estate projects in Abu Dhabi is estimated at Dh1000bn but most building is yet to be completed. Major real estate developers include Aldar Properties, Sorouh, Escan, Tamouh Investments and the Tourism Development and Investment Company (TDIC).
Major projects include Aldar’s Dh54bn Al Raha Beach development, Sorouh’s Dh9bn Shams project and Tamouh Investment’s Dh5bn Reem Island development. Tamouh Investments is currently involved in projects estimated at more than Dh220bn while TDIC is behind the ambitious Dh100bn Saadiyat Island project. Reem Investments is sponsor of the Dh13bn Najmat Abu Dhabi project.
In 2005, the Ras Al Khaimah (RAK) government established RAK Properties to promote real estate, tourism, and leisure facilities in the UAE with particular focus on the northern emirate itself. In May 2006 it launched the Dh10bn Mina Al Arab leisure project and it is developing the Dh2.7bn Mangrove Island and the Julfar Towers in RAK city.
Of the remaining emirates, Ajman has launched the Al Naeemiya Towers project and Pearl Residence; Umm Al Quwain has co-opted Dubai-based mega property developer Emaar to build a massive Dh12bn development comprising more than 9000 residential units; and Fujairah will build the 43-storey Al Jabar Tower.
Property prices in the UAE have rocketed in the few years since the emirates began developing real estate sectors in earnest. At Dubai’s Falcon City you can expect to pay around Dh3.4m for a three-bedroomed attached villa or Dh3.9m for a five-bedroomed villa. At Dubai Marina, a two-bedroomed flat will cost between Dh1.3m and Dh2m and a three-bedroomed flat between Dh2.8m and Dh3.2m in the Marina Quay or Marina Promenade neighbourhoods, while a two-bedroomed apartment on Park Island will cost between Dh1.3m and Dh2.1m.
Two- and three-bedroomed apartments at Al Raha Beach in Abu Dhabi cost Dh1.4m and Dh1.55m respectively. The three-bedroomed apartment does not have sea views and is cheaper than similar properties with attractive waterfront views. A three-bedroomed flat with nicer views in the Al Bandar neighbourhood of Al Raha Beach, for example, would cost Dh2.5m.
In RAK, a two-bedroomed flat at Julfar Towers will cost between Dh1m and Dh1.2m while a four-bedroomed duplex will cost between Dh2.9m and Dh3.6m. One-bedroomed flats selling below the Dh1m mark at Julfar Towers have sold out, while in Abu Dhabi, all of the properties marketed at Dh800,000 at Al Muniri are sold out though all of the more expensive options are still available. This suggests that demand for property is particularly strong at the lower end of the market.
Residential property prospects
Speculation that the UAE’s Dubai-led property boom may fizzle out or experience the kind of meltdown that the region’s stock markets suffered in 2006 has been heard for a long time now, but as yet there is little sign of this happening. Insufficient infrastructure and capacity constraints in the construction sector look likely to continue delaying the delivery of projects, including Dubai’s high profile Jumeirah Beach Residences and Palm Jumeirah projects.
There are some concerns that the global credit crunch will impact on the market, but the underlying drivers of the property market look sound enough. Demand for housing will remain strong as long as the UAE’s economies remain on a growth trajectory.
Even if demand slows substantially, the UAE authorities could shore up prices. Most major developers are substantially state-owned or controlled, thus they operate in an oligopoly and would be able to delay the release of new properties on the market, thus propping up prices.
Analysts say they expect to see property developers such as Emaar and Nakheel in Dubai or Aldar and Sorouh in Abu Dhabi become increasingly dominant in the market.
According to Mr Hagkull, the market is beginning to see real estate developers as “brands”. This means that buyers will choose one developer or the other because of their perceived ability to deliver property on time and to a quality standard. “A big focus is now on delivering,” says Mr Hagkull, who adds that there will be fewer people buying off-plan in the future. People are saying “I want to buy something I can touch and feel”, he concludes.