Why Dubai is still proving popular with overseas buyers
Of all the phrases that were aired with the most conviction at Cityscape 2017, the UAE’s annual real estate and infrastructure showcase that took place over five days in late September, “hitting bottom” must have achieved something close to top billing.
Whether uttered as much in hope as expectation, it was everywhere: in speeches, breakout sessions, sales pitches and lunch-break conversations, as though sentiment alone might be sufficient to drag the city’s property market out of what has been a sluggish period.
If Cityscape itself is any barometer, though, there are certainly signs that a 36-month period in which values have declined 14 percent on average – and up to 30 percent in the luxury sector – might be nearing a conclusion.
The Dubai Land Department reported that off-plan sales at last year’s event, which attracted an impressive 45,500 participants, totalled more than USD236 million, with more sales expected in the subsequent weeks.
Most of the headlines focused on the anonymous buyer of a penthouse in Omniyat’s luxury One Palm development for USD27.8 million. But perhaps more indicative of a general upswing was the announcement from Azizi Developments that it had sold out phase one of its USD3.25 billion waterfront project in Dubai.
Aldar Properties, whose return to show after a five-year absence was a positive by itself, sold out the first phase of its new Water’s Edge project on Abu Dhabi’s Yas Island, which equates to USD109 million-worth of sales.
“We saw a dramatic leap in the number of registered Land Department transactions made for off-plan units,” Lynnette Abad, partner and head of Property Monitor, a UAE-based real estate portal, says. “Permission to sell during the show has acted as a catalyst for investors in the region, and has resulted in a noticeable increase of activity.”
The last point is certainly one to take on board. Event-specific deals and innovative packages such as Al Mazaya Holding offering the keys to properties in its Q-Line development in Dubailand with just 20 percent down and a five-year post-handover payment plan does suggest it remains a buyer’s market.
MANY INVESTORS HAVE IDENTIFIED EXPO 2020 AS THE KEY FOR DRIVING THE MARKET FORWARD
Yet with a raft of new projects and masterplans revealed at the show there was an undeniably more positive mood at last year’s event. Big reveals included the USD2.2 billion, 15,000-unit rejuvenation of Dubai Motor City, a joint venture by Union Properties and the China State Construction Engineering Corporation (CSCEC). There was also Klieindhorst Group’s announcement of a “Floating Venice”, a USD680 million island that aims to recreate St Mark’s Square off the coast of Dubai.
According to Cityscape Global’s exhibition director Tom Rhodes two factors are responsible for the renewed sense of optimism. “Many investors have identified Expo 2020 as the key for driving the market forward,” he says. “Over the past year, more than 1,200 contracts have been awarded for the Expo 2020 with 47 construction contracts worth AED11 billion (USD3 billion) awarded in January alone.
“We have also seen the impact that Brexit has had on the regional real estate market. Such is the turbulent geopolitical climate in Europe, the UAE could be viewed as an increasingly attractive market for a safe investment from foreign markets.”
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The better news is starting to be reflected in the wider real estate sector. While Faisal Darrani, head of research at property consultants Clutton’s, prefers the word “stabilise” to the phrase “hitting bottom”, he is keen to underline that Dubai is only half-way through its second full property cycle.
Aside from headline-grabbing figures and announcements at property shows, he paints a more complex picture based on a combination of affordability, location and the value a developer can create in a project.
“We’ve experienced three years of price declines in residential capital values and since the last market peak in Q3 2008, values are 30 percent down,” Darrani says. “But those figures mask a much more complex picture. The luxury end of the market is still correcting and units in Burj Khalifa [the world’s tallest building], are as much as 70 percent down from that peak, and villas on The Palm [Jumeirah: a massive manmade archipelago off the Dubai coast] are 33 percent down.
“Yet certain locations haven’t moved at all. Anything that is priced under AED800-1,000 per square foot transacts well. And that’s where we’re seeing values hold.”
Unashamedly flashy, the United Arab Emirates offers numerous lifestyle benefits as well as real estate supply that play towards buyers' ideas of how luxury living should be realised
Indeed, stability does seem to be entering the very top-end, too, at least in the secondary market. High-end property brokerage Luxhabitat has reported that the average price per square foot in the prime segment – which it identifies as units in 12 districts including Al Barari, Downtown Dubai, Dubai Marina, Emirates Hills, Jumeirah, Jumeirah Beach Residences, The Palm Jumeirah and The Lakes – remained at around the USD392 per square foot mark, with a total volume of transactions at USD520 million.
As Cityscape underlined, though, it’s the off-plan sector that is bucking most of the trends. In Q1 2017, for instance, leading developer Emaar sold USD1.65 billion worth of property in Dubai, a 44 percent year-on-year increase, while Damac, another property titan, reported a 29 percent rise in off-plan sales between Q4 2016 and Q1 2017. In the depressed market of 2015-2016, analysts Reidin claim that off-plan sales accounted for half of all activity.
The economic picture explains most of this data. Dubai has endured a challenging three years, impacted by a fall in the price of oil (on which many companies based in the city rely, even if the city itself no longer does), a rising dollar (against which the Emirati dirham is pegged), and declining GDP, all of which have resulted in large redundancy programmes in the finance, banking, energy and aviation sectors.
And although growth predictions for 2017 have been trimmed from 2.5 to 1.5 percent, the International Monetary Fund has indicated the UAE’s economy will grow by 2.5 percent in 2018, driven by rebound in investment, manufacturing and trade. Then there’s Expo 2020, which has already resulted in USD3 billion in infrastructure spending which in turn will create more than 300,000 jobs over the next three years.
Adding to all this mix comes an influx of buyers from Asia, and particularly China. Since 2013, Chinese buyers have poured USD2.72 billion into Dubai’s real estate market, while Chinese real estate website juwai.com reports an 80 percent increase in enquiries for UAE properties between 2015 and 2016.
BREXIT WILL ONLY ENHANCE THE UAE’S PROMINENCE WITHIN THE MIDDLE EAST AS THE PREMIER DESTINATION
According to Bernie Morris, president of the UK, Europe and the Middle East for juwai.com, there is both a push and a pull factor for this upsurge in interest: Brexit reducing the appeal of long-favoured London and the range of opportunities in Dubai itself.
“[Brexit] will only enhance the UAE’s prominence within the Middle East as the premier destination,” he says. “With its high-quality new residential construction, the UAE has the perfect product for those Chinese investors who prefer to invest in off-plan or new build property.”
Indeed, the prices in Dubai’s prime locations, which hover around USD400 per square foot, certainly look like a better deal than Hong Kong (USD3,000 psf), Singapore (USD1,200) or London (USD2,000).
More: What you need to know about Asia’s final frontiers
There are other reasons, too. China is the UAE’s second largest trading partner, and there have been numerous high-level joint investments as part of Beijing’s “One Belt, One Road” economic initiative launched in 2013.
There is now, for instance, the USD10 billion UAE-China Joint Investment Fund managed by Mubadala Capital, while China’s Cosco Shipping Ports is in the process of launching a dedicated container terminal at Khalifa Port in Abu Dhabi.
For those looking to enter this market, there is not only a dizzying array of new properties in the pipeline, but also entire new districts set for completion in the next five years.
With grand land reclamation projects like Palm Jumeirah providing room to manoeuvre, there's no chance that Dubai will have any shortage of space for development anytime soon
Among the most intriguing are Emaar’s Dubai Hills Estate, part of the Mohammed Bin Rashid City project, which comprises villas, townhouses and residential towers, that will, when completed, offer 24,000 homes – and prices are already hovering around USD320 per square foot for the villas, which are set for completion in 2019.
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Dubai Creek Harbour, also by Emaar, is located on a six-square-kilometre area of land behind the Ras Al Khor Wetland Reserve and will be home to the largest skyscraper in the world and a huge plethora of residential towers and villas.
“These premises with views of the new tower are going for USD435 to USD490 per square foot,” says Clutton’s Darrani. “It’s a good example of how developers in Dubai are creating value now, by building billion-dollar monuments, essentially, and more waterfront properties.”
Importantly, though, with the population of Dubai expected to climb to nearly five million by 2030, the construction in this phase is more about meeting need than creating it.
The pre-crash philosophy of “build it and they will come” has been replaced by a more measured, albeit less quotable philosophy: build it where there’s a need at prices that make sense for as wide a customer base as possible.
The ongoing equalisation between supply and demand, in combination with a more promising economic outlook, ought to provide the stability the international investor needs.
Potential flashpoints
Although the overall economic outlook for Dubai looks more positive, there are two key factors that could affect real estate prices in the short-term, says Darrani of Clutton’s:
On oil price
“Although it contributes less than 4-5 percent of the country’s GDP, the UAE is home to many jobs that depend on oil, whether directly in the oil and gas sector, to allied industries such as logistics and finance. We’ve seen this impact the job market, especially at the key manager and C-level.”
On the Qatari diplomatic crisis
“The UAE’s Gulf neighbour has traditionally been among the top three regional investors into the Dubai real estate market, piling into luxury developments. But that market is now cut off from them. Should the diplomatic tensions persist, it might damage the reputation of the Gulf as a political safe haven – which, of course, has set it apart from the rest of the region.”
Crypto thinking
Considering the recent clampdown on cryptocurrency exchanges in China, perhaps Bitcoin devotees in Asia might be tempted to spend them on The Aston Plaza & Residences.
The twin-towered development in Dubai Science Park from British entrepreneur Baroness Michelle Mone is the first in the city to accept Bitcoin as a payment – which coincides with the Dubai Land Registry using blockchain technology to record all local real estate contracts.
“Dubai is an exciting place to be if you are interested in blockchain technology and cryptocurrency,” says Mone’s partner Doug Barrowman. “Aston Plaza apartments will be the first property purchase that is 100 percent end-to-end on the blockchain. The transaction starts with a blockchain-based cryptocurrency payment, it finishes with a record of the property purchase on a blockchain-based land-registry ledger.”
Prices for the apartments currently start at 32 Bitcoin, although one might expect that to change a few times before a contract is signed.
Dubai's most exciting projects
One Palm
Developer: Omniyat
Unit size: 4,331-29,800 sq ft (402-2,770 sqm)
Number of units: 90
Price: AED14.8-102 million (USD4-27.7 million)
Location: Palm Jumeirah
Completion date: 2018
X-factor: private jetties for yachts, exquisite views of the Dubai skyline
The Aston Plaza & Residences
Developer: Aston Developments Ltd
Unit size: From 493 sq ft (46 sqm)
Number of units: 1,133
Price: From 33 bitcoins (USD203,000)
Location: Dubai Science Park
Completion date: 2019
X-factor: first major residential development to accept payment in cryptocurrency
Dubai Hills Estate
Developer: Emaar, Meraas Holding
Unit size: 605-3535 sq ft (56-328 sqm)
Number of units: 24,000
Price (avg): USD320 per sq ft (villas)
Location: Mohammed Bin Rashid (MBR) City
Completion date: 2019
X-factor: 18-hole championship golf course, high-end retail centres
Oia Residences
Developer: Union Properties
Unit size: 810-2,930 sq ft (75-272 sqm)
Number of units: 269
Total development value: AED450 million (USD122 million)
Location: Dubai Motor City
Completion date: 2018
X-factor: contemporary Greek-inspired design, proximity to Dubai Autodrome
Creek Rise
Developer: Emaar
Unit size: From 831 sq ft (77 sqm)
Number of units: 524
Price: From AED957,888 (USD261,000) SD490 per square foot,”
Location: Dubai Creek Harbour
Completion date: 2021
X-factor: The Tower, a 928-metre-high structure with rotating observation deck
This article originally appeared in Issue No. 145 of PropertyGuru Property Report Magazine