Real estate revving up
IMPACT WILL BE GRADUAL RATHER THAN IMMEDIATE BUT INDICATIONS POINT TO MARKET SHAKING OFF EFFECTS OF GLOBAL DOWNTURN
After a four- year lull, Dubai’s property market has begun to roar again with the announcements of a number of new projects – reflecting a sustainable development roadmap for the sector
This could well be Dubai’s version of “quantitative easing”. With the announcement of the massive Mohammad Bin Rashid ( MBR) City, the emirate is trying to rework the entire dynamics of its real estate marketplace post the downturn. And it is going to have a multi- billion dollar knock- on impact for the broader economy,
The master- development will carve up a substantial stretch between Shaikh Zayed Road, Emirates Road and Al Khail Road, and there is nothing remotely short- term about it.
But what it signifies, more than anything else, is that Dubai is intent on turning around the real estate market not through scattered launches from a handful of developers but through state- sponsored projects set on a wide canvas.
Now that the first project for MBR City has been announced – “Dubai Hills” is being developed by Emaar and Dubai Holding — the dynamic that needs to be factored in how it will impinge on the property market now and in the near term. ( Dubai Hills will, strictly speaking, be a limited- edition project offering bespoke villas on plots of 20,000 square feet and more.)
But other projects would soon emerge with a wider investor base in mind. Would it then mean that a substantial portion of investor interest in Dubai property will be sucked in by MBR City? “Only a handful of developments [ were] launched during 2012, and the total number of new units has actually had minimal impact on the development pipeline,” said Matthew Green, head of Research and Consultancy at CBRE, which estimates that 36,000 new homes would be ready in the next two years across Dubai.
Existing stock
“As more new developments launch over the next 12 to 24 months, we may start to see some effect on existing stock… but with a time lag of at least three years for the larger tower projects.
“With investor appetite predominantly set on completed assets, we do not see an imminent impact on the market from a supply perspective.”
That is just what the local property needs — a phased build- up of buyer interest across a slew of projects and not a select few. This would, in turn, check any run up in values of the 2006 to end 2008 vintage. It would also give time for new projects in MBR City to bed down.
Then again, these are not normal times, and the Arab Spring has ensured that. Overseas investors continue to have a significant presence in new transactions as Dubai steel- reinforced its safe haven billing.
“Downtown Dubai, Palm Jumeirah, Dubai Marina and Emirates Living have seen prices moving up both in sales and rentals,” said Simon Gray, Managing Director at Chesterton International.
Downtown now has a price spread all from Dh1,000 per square foot ( psf) after recording value gains of 20 per cent this year.
High networth investors are renewing their faith in the Palm, where values have pushed to Dh1,100 psf and more. Dubai Marina has returned to Dh900 psf plus levels and in Emirates Living values are treading at Dh850 psf and rising.
“These types of premium properties are attracting investors who, in addition to the capital growth, see the future cash- flow potential from rental receipts,” said Mohanad Al Wadiya, Managing Director of Harbor Real Estate. “There are owner- occupiers who aspire to live in that particular community and, finally, individuals and families who are prepared to pay a rental premium to enjoy the lifestyle that they aspire to or consider superior to other offerings.
True demand
“So demand, and increasing product scarcity, is driving premium, which is simply market dynamics at work. This will not be an impediment as long as price growth does not become unsupportable with true demand and result in an asset bubble which requires some form of correction.”
But if Dubai manages to re- build the fundamentals of its property market, it can compete with any international destination for investment dollars.
“Even if [ property] assets in other geographies are going for a deep discount — Spain is as an example — investors will not put all their money in that market,” said Gaurav Shivpuri, Head of Capital Markets at Jones Lang LaSalle Mena.
“Investors would still want to diversify their investment; hence, I suspect, that investors from the Middle East and the Subcontinent would always see Dubai as an extension of their home market and will invest”.