Dubai Real Estate Outlook Improves
The new projects Dubai has been unveiling over the past couple of weeks include the expansion of Madinat Jumeirah, the mega-city project Mohammed bin Rashid City, or MBR City, and the expansion of The Dubai Mall, which, combined, will require billions of dollars of investments over the next 10 years.
MBR City will consist of 100 hotels, the world’s biggest shopping mall and a Universal Studios theme park. This announcement was followed by the unveiling of plans for a new 2.7 billion entertainment complex in Jebel Ali that will feature five theme parks. Other projects that have been announced in recent months include a 1 billion replica of the Taj Mahal and a canal connecting the city’s business district to the sea.
Analysts are also seeing a pick u p prices of residential properties in Dubai to augment their observation that the market is resurging.
Citing Reidin Residential Sale Indices, a report by JLL said the overall residential market is picking up, with average prices increasing by 14 per cent in the first nine months of the year, largely due to an increase in villa prices.
Prices for villas have risen 23 per cent compared to same period last year, and are now 14 per cent higher than in early 2008. By comparison, apartment prices rose just four per cent and remain 18 per cent less than their peak in the third quarter of 2008.
JLL said the villa rent index has increased seven per cent compared to the first nine months of last year and has now reached its highest level since the index started in 2009. While the apartment rental index has increased by five per cent this year, it remains 30 per cent lower than its peak level in January 2009.
JLL said there are clear signs that the Dubai economy is recovering on the back of the three Ts of trade, transport and tourism, with the Dubai Statistics Centre releasing new figures that show real GDP growth of 4.1 per cent over the first half of 2012 – the fastest growth rate since early 2008.
“Encouragingly, there are also indications that some of the lessons of the last real estate crisis have been learned. The most important of these is the need to adopt a long term and coordinated approach, rather than developing too much real estate too quickly. Providing this proves to be the case, then the recent announcements can be seen as a positive for the market in the long term,” the real estate consultancy said.
“Indications of the change in tone and temperament include a greater degree of coordination between developers; adherence to the recently approved Strategic Planning framework for Dubai; more emphasis on phasing with most developers recognising that major developments will need to be built over a much longer timeframe of between 10 to 20 years, and lastly a recognition that major demand generators need to be developed ahead of other components of mixed-use projects
. It is now recognised that attractions and anchor tenants must be developed first, in order to generate demand for other components of the project,” JLL said in a report.
The report argued that another factor to consider is that not all of the announced projects are likely to attract funding.
“Banks remain wary about lending to real estate developments at a time when they still have to make major provisions against nonperforming real estate loans from the last development boom,” it said.
JLL’s soon-to-be-released 2012 Real Estate Investor Sentiment Survey shows that investors also remain cautious, preferring completed income producing projects than development plays or land.
“Given the understandable reluctance to rely so heavily on ‘off plan’ sales as in 2007-08, the level of available finance is likely to act as a natural anchor, limiting the number and timing of the announced projects that proceed,” the report said.
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Shayne Heffernan Ph.D.
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Shayne Heffernan oversees the management of funds for institutions and high net worth individuals. He is also an active consultant working with Corporations around the World.
He is recognized as one of the leading Economists in South East Asia, as well as the preeminent authority on ASEAN. His opinions and forecasts are widely read by decision makers in the region and Internationally.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.
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