|
|
|
Rising Temperatures in the Dubai Real Estate Market - How Hot Can it Get? |
The temperature is continuing to rise in the Dubai property market, with hot new developments selling out in hours. But as speculators buy and sell property frantically, banks and builders try to slow the market down. Just how stable is the property market in Dubai.
Never has there been such an ambitious and creative drive to establish a property market as has been witnessed in Dubai over the past three years. Running short on oil reserves, Dubai's crown prince, Sheikh Mohammed Al Marktoum, set out to turn Dubai into the financial, commercial and tourism capital of the Middle East and in the space of three years he has more than succeeded. The country's GDP has expanded by 17 per cent over the past year and HSBC Bank estimates that there is $42.5 billion worth of projects under construction, compared with $20 billion for the rest of the neighboring oil states put together.
The result has been the rise of Dubai as the world’s most glamorous
property investment market. Nothing in Dubai is understated. The tiny
emirate, that in the not too distant past was nothing more than a
simple fishing village has suddenly become the Manhattan of the Middle
East. Following the mantra ‘bigger is better’ Dubai has proudly
announced the world's first seven star hotel, Burj Al Arab and is set
to construct the world's biggest shopping mall, the first underwater
hotel and amazingly, the longest indoors ski slope.
.
Already
the annual number of visitors stands at 5 million and is set to rise to
10 million by 2007 and 15 million by 2010. The scale of development
has been unprecedented with apartment blocks being constructed by the
dozen and selling out within days to hordes of zealous investors
prepared to queue overnight to bag a bargain in Dubai. The projects
being released are some of the most inventive and ambitious the world
has seen, with man made islands such as The Palm and more recently The
World capitalizing on the attractions of beach front living and
redefining the world’s geography in the process.
With real
estate as out of the ordinary as this, it's not difficult to see why
Dubai's property market is attracting such large-scale international
interest. There really is nothing like it and it seems everybody who's
anybody will have a piece of Dubai. Dubai's more exclusive
developments are being snapped up the celebrity classes and the world's
elite. Ageing English rocker, Rod Stewart is already the proud owner
of Britain [The World's miniature Britain that is!] and villas along
the Palm are being bought by sports stars, film stars and anybody with
upwards of €1.5 million to spend on a private waterfront retreat.
Dubai's
vision and inventiveness is coupled with it' desire to attract the
elite of global society. Le Reve, a fifty storey apartment building
has each of its floors dedicated to a single 13,400 square feet
apartment. Will Posh and Becks and the multitude of other celebrities
who bought on the Palms be cashing in their waterhomes for one of Rami
Mallhas luxury apartments. Who knows?
If so much has been
achieved in three years, where is Dubai to go from here? Nakheel, the
company behind the extraordinary Palm and The World projects already
has its eye, literally, on a new development. Dream City, like the Palm
is also a series of man made islands but out sizes the Palm
significantly. When finished, Dream City will form the shape of an eye,
with the residential element on giant eyelashes extending out into the
Persian Gulf. Villas at Dream City start at €425,000 for around 371 sq
m (4,000 sq ft) of accommodation. Townhouses start at €200,000, while
one and two-bedroom apartments start at €150,000.
For the
property investor seeking a lucrative return, a new market is always a
risky one and the fear is that the market may collapse soon after it
has taken off! With plenty of anecdotal evidence to suggest that
property prices in Dubai are rising by as much as 60% in one year, it's
tempting to rush straight in and grab a piece of the action. But the
canny investors will have to consider if it is too much too fast.
The
pace of the property market in Dubai makes is a speculators dream.
It’s not unheard of for properties to have been transferred up to a
dozen times even before the building is complete. Many opportunistic
investors are booking 10 to 20 villas in new developments, selling them
at significant profits before they have been completed.
Cashing
in on this and perhaps in an effort to cool the market, builders are
charging a fee of up to 7% each time a property is transferred and
lending institutions are trying to keep some control on the market by
agreeing to finance only the original sale price. In the secondary
market, prices can exceed the original price by 10-70%, depending on
the development’s popularity.
All the indications are
suggesting that the initial hype is easing and prices are settling. A
year and a half ago 900 houses in one development sold out in 7 hours.
Many believe that demand will continue to be sustained and prices will
continue to rise, though not at the frantic rates they have been rising
over the past two years.
In comparison to other new and
emerging markets, such as those in Central and Eastern Europe, Dubai
appears to be a more attractive investment. Prices in the middle
market are comparative to those in Eastern European cities such as
Tallinn and Krakow. Unlike these countries Dubai has the sunshine
factor and a glamorous edge, which is surely contributing to the high
immigration from Europe, the Gulf Region and the Indian subcontinent.
Over 100,000 extra people are expected to arrive in Dubai every year.
Such large-scale immigration is sure to sustain the property rental
markets.
Other property markets are seeing rental yields drop
through the floor. Too many investors buying up properties and not
enough tenants to rent them! Ireland, Britain and many of the New
European capital cities are seeing yields drop to below 3%. In Dubai,
rental yields have dropped from a very healthy 8-9% but are now holding
firm at 6-7%. The fact that in Dubai rents are paid in advance,
sometimes up to one year in advance, is surely a motivating factor for
those considering a buy-to-let property in Dubai. On the downside,
service charges on new development can be high, anywhere up to £4000
per annum and may be requested by the developer upfront!
Many
too are questioning whether Dubai can sustain the level of growth that
the country is experiencing. The property market may be developing at
phenomenal rates but is the infrastructure developing with it?
Already, Dubai's main highway, Sheikh Zayed Road, is a congested
bottleneck being the only major route in and out of the city. Add to
that the hundreds of thousands exiting Dubai's Palms [tourists,
residents, maintenance workers, hotel staff etc] and you've got traffic
mayhem. One of the fastest ways to travel around Dubai could be on
water taxis but in temperatures where the sea is too hot to swim in,
how many people are going to want to travel in such uncomfortable
conditions. An air conditioned car is the only way to travel in
Dubai. Failure to moderate demand or accommodate it through improved
infrastructure could lead to Dubai's downfall.
Criticisms are
also being thrown at government owned developers Nakheel who are
accused of underestimating the cost of building their ambitious
projects. Nobody really believed that The Palm Jumeirah could be build
for £90 stg a square foot, the price early investors in the development
paid. It was always expected that prices would rise, [standing now at
£225 stg a square foot] to fund the project but now a huge amount of
ambiguity now surrounds the number of housing units that will be built
on the islands. Investors fear that the self proclaimed Eight Wonder
of the World, may be an overpopulated congested nightmare. Estimates
for the number of units being built on the Palms are increasing all the
time. On the crescent of Palm Jumeirah, 26 boutique hotels with 12,600
rooms are being built, many of these having doubled in size from
original plans. Having grossly underestimated the cost of building the
Palms, Nakheel have responded by increasing the housing stock. The big
question is can the 5 lane each way trunk support the additional
traffic?
So what's on offer in Dubai for those of us who
can't quite afford the luxury of Le Reve? Dubai Property Link are
offering a one bed apartment on Palm Jumeirah for £183,241. Not a bad
price tag for a pad on the same stretch of man made land as Posh and
Becks! A four bed luxury golf home in Emaar's Arabian Ranches
development will set you back €486,000. All of Emaar's villas are
built in traditional Arabic architectural style, and buying here is as
much about lifestyle as anything else, with equestrian facilities,
abundant shopping centres and top class restaurants nearby. At the top
of the scale, €2 million will make you the proud owner of a 7000 sq ft
lake view signature villa on one of the Palm Islands with all the
advantages of the world class amenities and entertainment that the
Islands promise.
Despite the current boom and huge immigration
into Dubai cautious investors are raising understandable questions
about the safety of investments in the UAE. The Dubai freehold market
is only a year old, a move introduced to calm investor's fears about
the long term security of their investment. However, the UAE allows
individual emirates to issue their own legislation to regulate
ownership of real property. While Dubai is committed to encouraging
overseas investment, they rule by decree and decisions can be changed
overnight on the whim of the current ruler. So while tourists and
investors can enjoy the relatively liberal environment, one simple
change of rule could bring the country in line with the other Emirate
States making it an alcohol free zone ... bad news for tourists. Given
the pace of development and the long term plans for the country, it is
unlikely however that this will happen.
If the property market
in Dubai is to develop with any degree of stability, capturing the
interest of second homeowners and expats seeking to relocate is
essential. If the market continues to be speculator driven, the
possibility of a speculative bubble is not unlikely. However, the
recent revision of property ownership laws for foreign investors should
encourage a more stable property investment climate, helping to avoid
any crash that might be caused by a quickly exhausted investor base of
opportunistic speculators. |
|
|
|
