Dubai redesigns shape of things to come
Since it discovered oil in the 1960s, Dubai has quickly transformed itself from a fishing settlement into one of the world's most cosmopolitan cities, with bold and striking architecture. After opening its property market to foreign investors in 2002, the emirate emerged as one of the hottest real estate markets. But while optimists believe the Gulf state's growing finance and trading activities will keep the rally going, sceptics believe the market may not be sustainable as a growth engine for the economy
Dubai's booming real estate market - prices have more than doubled since the market opened in 2002 - is not a cause for euphoria and the plan now is to sustain growth by turning the emirate into a regional financial hub, industry players said.
However, they generally expect growth to slow this year and warned that investors should not overlook ambiguities in the state's property regulations and low market transparency before jumping on the bandwagon.
'Property prices are unlikely to dramatically decrease in the next six to 12 months, because high oil prices will keep investment going in the region,' said Steve Brice, senior economist with Standard Chartered Bank for the Middle East.
'But there could be some short-term hiccups down the road,' said Mr Brice, who is based in Dubai. He expects property prices to grow a moderate 5 per cent to 10 per cent in the next 12 months, but there might be a correction on a 24-month horizon.
Dubai, one of the seven member states of the United Arab Emirates, has been experiencing rapid economic growth since it opened its property market to foreign investors in 2002.
The UAE's nominal GDP grew 17.7 per cent last year but its economics ministry forecasts growth to slow to 11.9 per cent this year.
The emirate is spearheading efforts to become a business and tourism hub for the Middle East region in light of its depleting oil reserves.
About US$80 billion worth of developments are under way, of which about 85,000 residential units are expected to be completed by 2008.
Naaman Atallah, sales director with Emaar Properties, the biggest developer in the region, said he did not think the units would create an oversupply in the market as they would be taken up by new businesses.
Nick Jopling, managing director with CBRE Hamptons International for Europe and the Middle East, agreed.
'There is an ongoing strength of demand which will underpin the financial market behind it,' he said.
'Interesting designs and good quality stock sent prices climbing 30 to 40 per cent last year.
'But we expect the growth in prices to slow to about 10 to 15 per cent this year,' Mr Jopling said.
However, he cited an 'incredible' lack of market transparency and called for clearer regulations on foreign ownership.
At present, the legal framework lacks clarity on freehold properties owned by foreign investors. These investors are registering their properties with developers instead of the government.
It is widely expected that Dubai will introduce legislation permitting the sale of freehold titles to foreign buyers that can be registered with the local authorities. There is also no regulatory body in Dubai to oversee the property sector and protect the rights of consumers.
'As prices are going up, people don't really mind what's happening. When prices start to fall, it will become a concern,' Mr Brice said.
Fahad Al Gergawi, international business development director with government-owned Dubai Properties, admitted that there was at present some uncertainty in the sector. However, he believed the government would do its best to enhance investors' confidence.
'This is a booming time for the city,' he said.
'We cannot sacrifice the multibillion dollars worth of developments because we lack this law. This is not going to happen.'
'We are depending on it. We are a non-oil-based economy, and this is where our economic contribution comes from.'
After the residential boom, he said Dubai was now concentrating on developing its commercial sector to cater for the multinationals setting up their operations in the tax-free economy.
The developer is constructing the Business Bay project, which will have 500 buildings.
The project is targeted to become a new central business district replicating the success of New York.
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