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Fleeing capital seeking shelter in Dubai

Thursday, May 31, 2012

The Arab Spring forced many regional investors to commit to a property investment in Dubai, as a safe home and a high yielding asset.

But the rush of such purchases, apparent all through the second-half of last year, has not been able to firm-up property values across the board. Instead the gains have been limited to select locations, with investors not too willing to cast their nets wide.

Market sources reckon that select, upscale properties in Dubai have seen a seven to 12 per cent increase in asking values since the start of the year.

“There appears to be more money flowing into Dubai from the wider region with significant capital outflows being recorded in countries like Egypt and Afghanistan,” said Mat Green, head of research and consultancy at CB Richard Ellis Middle East.

“Evidently, you would expect to see a proportion of this money finding its way into safe havens such as Dubai and Abu Dhabi. The main focus at this stage is high-end properties, particularly villas, in locations such as Emirates Living and Palm Jumeirah.”

Nakheel decided to launch its first project post after its financial restructuring at the Palm Jumeirah. The project, Palma Residences, will develop 104 townhouses of Dh6 million to Dh8 million, of which 30 were snapped up during the pre-launch phase.

According to market sources, it is only the premium and super-premium locations and properties within that seem to interest the Arab investor. There is a marked preference for existing properties of three- to five-year vintage and which have shown a remarkable degree of resilience during the downturn.

“The predominant focus of these investors is for a new home or a safe base to move funds,” said Cecilia Reinaldo, partner at Fine & Country. “They are not looking at yields or what the property might fetch in five years.

“The transaction reports indicate many purchases coming from Arab nationals, principally the Syrians, Lebanese and Egyptians.”

More than anything else, this has also helped burnish the image of Dubai as a safe haven. According to Shahab Lutfi, CEO of H&H Investment and Development, “The recovery in the real estate market from the 2010 low has shown that Dubai will have its place as a global city and its real estate will always be a strong asset to hold onto.

“The only problem is that we still don’t have the large share of wallet from any investor. Dubai still comes as a third or fourth choice [for] investors’ in terms of owning real estate [because] of the legal framework that protects the assets.”

Dubai does not allow overseas investors to acquire properties through offshore vehicles registered outside of the UAE. But, these vehicles are where high net-worth investors typically park their investments.

Investors also want more regulatory safeguards. Green said: “While values in Dubai’s property market appear attractive compared to the market peak, there is still a degree of risk involved in any real estate transaction.

“Significant inroads have already been made into improving the regulatory environment in the emirate, but further strengthening of real estate laws - such as the proposed investor protection law - can help to further mature the market and make it more attractive to new investment flows.”

There are many regulatory issues that an international investor would want to see addressed before they would seriously commit to the local property market. One recurring niggle has to do with the developer’s responsibility towards the investor following lengthy project delays.

“The perception by some investors that the laws do not sufficiently protect them in instances where a developer’s project is considerably delayed - or has ceased entirely - could be considered a barrier to entry for them,” said Dean Cheesley, senior legal consultant for real estate at the law firm of DLA Piper.

“While the laws in place theoretically provide investors with the protection they require, the careful administration and enforcement of those laws is essential to ensure the continued attraction of investment from overseas.

“[There are] methods in which the enforcement and administration of these laws could occur more efficiently. We expect in time such recommendations will begin to be implemented by the Real Estate Regulatory Authority (Rera) and others, and thus have the effect of further enhancing investor confidence in the real estate market.”

And this is what the Dubai property market needs beyond to maintain its recovery beyond the Arab spring.

By Manoj Nair Associate Editor

© Gulf News 2012. All rights reserved.

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