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Dubai Real Estate |
Dubai has been experiencing a Real Estate boom for the past few years and with the introduction of Freehold Properties, Dubai has become a hot real estate investment market with major investors coming from Iran, India, Germany, Britain and other Gulf Nationals.
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Construction is booming in Dubai but property prices may begin to decline over the next two years as the latest rush of building reaches completion.
Will Dubai's property bubble burst sooner than later? This is the question being asked as a real estate boom has spawned massive construction projects in the emirate which has witnessed an economic upswing in recent years.
The economy of Dubai, the Gulf's trade and tourism hub, grew a record 16.7 percent in 2004 on strong state spending, firm oil prices and a growing private sector.
"At current prices, Dubai's GDP recorded a phenomenal increase to 98.1 billion dirhams ($26.7 billion) in 2004, up from 84.1 billion dirhams in 2003,"Mohammed Ali Alabbar", head of Dubai Economic Department, said recently.
Alabbar said he expected the gross domestic product of Dubai to grow 10 percent in 2005.
Oil contribution to GDP grew 10.9 percent in 2004, but there was a 17 percent growth in the share of non-oil sectors that reduced dependence on oil to 6 percent in 2004 from 7 percent in the previous year.
The construction sector achieved the highest growth rate of 29 percent to 11.1 billion dirhams, while the real estate sector grew 22 percent and industry grew 16.6 percent. Dubai has dwindling oil reserves of its own. The government is spearheading an ambitious economic diversification program with real estate, trade and tourism the main drivers.
At least $50 billion of residential projects will be built in the next four years, including at least 85,000 new homes, according to research by EFG-Hermes, an Egyptian investment bank with offices in Dubai. “The real estate and construction sectors have become the centerpiece of Dubai’s economy,” EFG said in a research note recently.
Dubai has become a key venue for business and investment in the Gulf, with one of the most liberal business environments in the region.
Large real estate companies like Emaar Properties, Al-Nakheel, Al-Ittihad, and Jumeirah, backed by the government have emerged in the recent past.
Emaar said recently it awarded a 2.7-billion-dirham ($735.1 million) contract to a consortium to build a shopping mall it says will be the world's largest. Dutco Balfour Beatty-Al Ghandi & Consolidated Contractors International Company will build the1.12-million-square-meter Dubai Mall.
The complex, expected to be completed by 2007, will include the worlds largest gold market and will be flanked by an artificial lake and a residential facility. The company said it launched about 40 real estate projects in 2004. Dubai also launched in January its multibillion dollar Dubai Waterfront real estate project which will be open to private and foreign investors.
Dubai's state-run property firm Nakheel would remain the majority owner but would offer to investors 49 percent of the Dubai Waterfront Co. which is to develop the 8,100-hectare residential, tourism and commercial project. The project — which will include themed beachfront communities, canals and man-made islands — will be located on the emirate's coastline near the border with Abu Dhabi. Industry sources estimated that the development was more than 10 times the size of the $3-billion Palm project.
EFG said freehold house prices had doubled over the past two years because only a fraction of homes under development had been completed, creating a short-term supply crunch.
But with many set for completion by the end of 2006, EFG said the market "is at the beginning of a phase of declining prices" and that prices may drop 20 percent in 2007.
Dubai's business-friendly policies and liberal lifestyle has lured companies such as Microsoft Corp., HSBC Holdings and DaimlerChrysler AG into setting up regional headquarters there.
The International Cricket Council (ICC) is also to abandon its home of 96 years at Lord's Cricket Ground in London and move to Dubai.
Dubai is also betting on its exotic image to lure Indian, Arab and Western film productions to a tax-free studio complex.
The first stage of the Dubai Studio City will be up and running by the first quarter of 2006, with an initial government investment of 400 million dirhams ($109 million) to build modern infrastructure at its desert location. In 2002, Dubai became the first Gulf Arab emirate to allow non-Gulf nationals to own real estate.
Daniel Hanna, an economist with Standard Chartered bank in Dubai, says the emirate's building boom is partly driven by high oil prices.
"What's different about this oil boom is that a greater portion of the money has been invested at home. With the stock markets relatively small a lot of money has gone into the real estate sector," says Hanna. He said investors from India, Pakistan, Iran, the United Kingdom and Russia have invested "billions of dollars" in Dubai's property sector.
Investors have been lured by Dubai's year-round sunshine, tax-free environment and state-led real estate projects.
These include three giant man-made Palm Islands reclaimed from the sea, one of which is the size of Manhattan, and Burj Dubai, the world's tallest tower. Completed between 2006 and 2009.
Dubai's Crown Prince Sheikh Mohammed ibn Rashed Al-Makhtoum has said foreigners can own property in designated zones, but a promised land law securing their property rights has not yet been approved. "It is a grey area," said Marwan Awad, a lawyer at the Dubai office of United Kingdom-based firm Trowers & Hamlins. "There is still no land registry system and freehold right to register the property in their own name. A Dubai land law has been promised - it seems likely it will be passed in the next year or two," he said.
Elaine Jones, managing director of Dubai-based Asteco Property consultancy, said speculators were the main home buyers in 2003 and 2004, but that there were now increasing numbers who buy to occupy, mainly European and Asian expatriates. Jones said supply shortages in the freehold sector had sent residential rents rising by around 20 percent in 2004, and office rents as much as 35 percent higher.
A moderate correction now was more likely than a crash in prices given Dubai's fast-growing economy and an influx of expatriate professionals.
Dubai's mainly expatriate population grew by 7 percent to 1.2 million in 2003, official statistics show.
Some analysts fear the greatest risk to Dubais real estate market is not the risk of too many houses but too many houses of the wrong kind.
EFG warned of "a possible mismatch between the supply of luxurious units and demand" for affordable, mid-range homes.
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