Roundup: Dubai property market not heading to bubble
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E-mail Xinhua, October 11, 2013
The real estate sector in Dubai is far from overheating despite double-digit sales price increases for villas and apartments, property developers told Xinhua at the annual three-day real estate fair "Cityscape Global" which ended here on Thursday.
With over 200 exhibitors around the world and 25,000 square meters occupied floor space, this year's Cityscape was the biggest in terms of participants and occupied space in four years. With a flood of new projects presented for Dubai where 2.5 million people live, the question that whether or not the Gulf Arab emirate was heading to a new real estate bubble becomes the talk of the city.
According to a global real estate consultancy Jones Lang LaSalle, sales prices for villas and apartments in Dubai have increased by 14 percent and 15 percent year on year respectively.
But Alan Robertson, Jones Lang LaSalle CEO for the Middle East and North Africa region, told Xinhua in an exclusive interview that the market was far from overheating, as the property developers no longer flood the market with large projects and only enter the market with small projects such as 500 villas at a time and in phases.
Before the global financial crisis broke out in 2008, Dubai's last real estate went pop amid massive speculation and a lack of regulation, and projects with 5,000 villas were not unusual at that time, said Robertson.
"A Dubai regulator named RERA was set up in recent years and the Dubai Land Department last week doubled the transaction fee for objects to four percent from two percent, making the real estate buying and fast re-selling much less attractive," said Robertson, adding that the average prices for residential units were still 19 percent lower than the peak in 2008.
Meanwhile, Ahmed Al Marri, general manager of Dubai's second biggest developer Union Properties, said he doesn't see any bubbles for now in the real estate market. "What we observe is that the involved parties in the construction and property sector, namely developers, builders, banks and brokers, work much closer together today than before the crisis. We all learned our lessons," said Marri.
Union Properties, the developer of the car racing circuit Dubai Motor City, presented at the Cityscape its latest project, a shopping boulevard whose architecture design was inspired by the world-famous Champs-Elysees in Paris.
"We have six new projects in the pipeline, but we will not start them all in one, we will enter the market cautiously, phase by phase, step by step," said Marri.
By law, developers are not allowed anymore to launch units sales if financing by banks is not secured. In addition, investment capital has to be paid in a special account called escrow account, which has to be transparent for all stakeholders, and its balance will be monitored by the Dubai government, said Jones Lang LaSalle's Robertson.
The regulator RERA also demands from property developers 100 percent ownership of the land they build on. Advertising any project without a building permit -- which was quite usual before 2008 -- is illegal under Dubai law.
Meanwhile, according to the analysis of property services agency CBRE, the increase in office rents in the Gulf Arab city, also known as the Middle East's biggest business hub, fell to three percent in the third quarter this year from 10 percent in the first quarter, and around 45 percent of bureau space is still vacant.
Robertson said global sources of finance into real estate were nowadays much diversified than those of before 2008, which would help balance the market in case that investment flows from other part of the world would decline.
One of Dubai's biggest clusters of offices is the banking offshore hub Dubai International Financial Center (DIFC). Earlier in the week, the DIFC announced that it now holds 1,000 companies running branches in the center of Dubai, including 22 of the 25 biggest banks in the world.
Despite the booming real estate market, Brett Schafer, the CEO of the DIFC's properties unit, told Xinhua that Dubai was still price-wise ranking the sixth among all global financial centers. " Compared with Shanghai, London, Singapore or New York, offices in the DIFC are cheaper and we have not increased our rents in the last three years," said Schafer.
However, danger for Dubai's latest real estate dreams comes from a different front.
With all current new projects in the pipeline summing up to 180 billion U.S. dollars, the International Monetary Fund's country manager for the United Arab Emirates (UAE), Harald Finger, warned of the rising debt amount the new real estate boom has created.
"We estimate Dubai's debt at 142 billion dollars," said Finger in a conference in July, "That amounts to 102 percent of its GDP."
Government-related entities such as developer Nakheel are at the forefront of pumping new projects into the market.
Finger added that considering the recent progress in restructuring the debt of the government-related entities, "Dubai should continue to focus on strengthening that sector."
In November 2009, Nakheel's inability to pay off an Islamic bond of 4.1 billion dollars pushed the Gulf Arab emirate to the brink of bankruptcy. That was only avoided by its oil-rich neighbor emirate of Abu Dhabi which helped Dubai out with an emergency loan worth 10 billion dollars. Endi
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