Friday, Jan 11, 2013
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 (no estimates have been announced publicly so far) 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.
But other projects within MBR City could soon emerge out of the pipeline and 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 the many investment options that MBR City will no doubt have? If that were to happen, how will the rest of the property market - freehold and otherwise - cope?
“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 unchecked run up in property values of the 2006 to end 2008 vintage. It would also give time for new projects in MBR City to bed down and link into the rest of the market.
Then again, these are not normal times, and the events coming under the umbrella of the Arab Spring have all but ensured that. Property sources confirm that overseas investors continue to have a significant presence in new transactions, though there has been a slight drop since the highs touched during late last year and in the first quarter of this one as Dubai steel-reinforced its safe haven billing.
“Interest for select properties and developments has been there since the early part of 2012; key areas like Downtown Dubai, Palm Jumeirah, Dubai Marina and the Emirates Living areas have seen prices moving up both in sales and rentals,” said Simon Gray, the MENA Managing Director at Chesterton International.
The Downtown now has a price spread all from Dh1,000 per square feet (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 toDh900 psf plus levels and in Emirates Living values are treading at Dh850 psf and rising.
A significant portion of these transactions has been fuelled by overseas investors. In some of the more select developments, even the majority of recent deals could be foreign owner driven.
“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 Alwadiya, Managing Director of Harbor Real Estate. “Then 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.
“So demand, and increasing product scarcity, is driving the premium, which is simply market dynamics at work. This will not be an impediment as long as the price growth does not become unsupportable with true demand and result in an asset bubble which requires some form of correction.”
This is all very well for Dubai’s well-established high-rise or villa communities. Move beyond them and the growth patterns tend to hit a rut or two.
“The same level of performance is not seen across the market, with many secondary and tertiary locations still suffering from oversupply and lack of infrastructure,” said Green. “The fragmented nature of the market means investors have to be select in their investments with different sub-markets and products performing independently from one another.”
But that is for the future to tell and for individual investors to come up with their own priorities. Meantime, if Dubai manages to rebuild the fundamentals to drive its property market over the mid- to long-term, 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”.
The launch of MBR City will only go towards furthering their options. Dubai, secure in its safe haven status, could well be better off for that.
By Manoj Nair Associate Editor
Gulf News 2013. All rights reserved.
© Copyright Zawya. All Rights Reserved.