Dubai heats up again
Foreign buyers are showing renewed interest in growing financial hub, writes Peta Tomlinson
Three years ago, Chinese investment in Dubai property was estimated to have jumped by 700 per cent. Dubbed as "bargain hunters" by statistics gatherer REIDIN.com, mainlanders bought US$157.3 million worth of homes in the emirate in the first eight months of 2010, taking advantage of a deeply deflated domestic market and the inclusion of the United Arab Emirates on the central government's list of approved investment destinations.
At the time, Dubai was reeling from one of the biggest property slumps since the global financial crisis. Prices plummeted by 64 per cent below the years leading to the mid-2008 peak. Developers wrote down billions of US dollars after the values of their projects halved, leaving apartment towers unoccupied or even abandoned.
In 2013, Dubai is once again "one of the hottest real estate markets on earth", ranking second in a Forbes rating behind Hong Kong. The report cites Knight Frank data showing that Dubai housing prices rose by 19 per cent last year - but beyond that, location was a key criteria. Dubai has a strategic role in the expansion of global and inter-regional trade in the Middle East and North Africa, and is positioning itself as the financial hub of the region. Forbes also notes that "with the first three months of 2013 already witnessing a massive rise in home-buying interest among end-user expatriates, as well as investors, this year could see Dubai rise to the top of the global ladder".
Developers, such as Emaar Properties, having seen a potential opportunity, have begun marketing their schemes in the region. Indians are traditionally the largest foreign buying bloc - a Government of Dubai Land Department report shows that Indians comprised 25 per cent of the 36 billion dirhams (HK$76 billion) investment by foreign investors in the city's property sector in 2012. Noting this, the company held roadshows in Mumbai and New Delhi in February, showcasing its residential and commercial portfolio.
The company is advertising in Singapore but remains circumspect about plans for a Hong Kong or mainland roadshow. Emaar says: "With our projects' launches in Dubai attracting customers from around the world, hosting special roadshows in international markets provides the opportunity to engage with potential clients. These roadshows also highlight Dubai's growing appeal as a preferred destination for investment, and as the fastest-growing shopping, tourism and business hub."
Across the city, construction is on again. A series of new project announcements include an Emaar/Meraas Holding joint venture to build the 11 million-square-metre Dubai Hills Estate, a mixed-use project featuring an 18-hole golf course, and Dubai Holding LLC's plans to develop the 6.5 million-square-metre Dubai Creek Harbour project. Emaar has also started work on a massive expansion of the Dubai Mall, the world's biggest by area. Companies such as Tecom Investments LLC, a unit of Dubai Holding, and Nakheel PJSC, builder of the palm tree-shaped artificial islands off Dubai's coast, are also reportedly starting new developments. Dubai's upcoming new residential supply is expected to total 40,000 units during 2013/15.
Yet the pace of growth has some concerned, including Craig Plumb, head of Middle East research for Jones Lang LaSalle, who says: "There are real concerns that the Dubai residential market is again overheating and that stakeholders in the market have not learned the lessons of the last market boom [from 2006 to 2008] that quickly led to tears."
Adds Matthew Green, director and head of research, consulting division, CBRE Middle East Region: "We've seen price rises higher than we'd anticipated - arguably slightly higher than the market normally would have justified. In some locations, [prices] are up 20 to 30 per cent in the space of a year. Some hallmarks of the 2006/07 escalation have made Dubai a less competitive environment." He also notes that another area "which will need to be monitored closely moving forward is that of speculative investment, with recent return of speculation and flipping of off-plan properties".
Nevertheless, Green asserts that Dubai still has potential for further growth - especially given the strong rental market, where new leases typically command an increase of 17 per cent. "Dubai offers investors a safe haven environment and potential for capital growth, which has been a key driver for significant investment activity in the residential sector over the past 18 months," he says.
Jones Lang LaSalle reports that, for the first time since mid-2008, all sectors of the Dubai real estate market are in recovery. "However, the positive performance remains largely concentrated in the best quality projects in prime locations, with secondary locations and poor quality projects continuing to experience high vacancy rates and stable or even falling rental values," Plumb says.
As for who's buying, Helen Tatham, director of residential for Knight Frank UAE, says there is not much evidence that Chinese have been investing in the past couple of years, although there is "definitely more of a presence of Chinese nationals" in the emirate. "They are more likely to become involved at developer level than smaller purchases but I firmly believe that this will change in the coming years," she says.
There are "no bargains in today's market", Tatham adds. Typically, investors should expect to spend US$300,000 for a one-bedroom apartment in a popular development. "For investment purposes, apartments tend to be the favoured choice. The units are easy to manage, and there are some distinctive areas that offer the best returns or lifestyle, such as Dubai Marina, Downtown Dubai, Emirates Living and Palm Jumeirah."
At the high end of the prime residential market, large independent villas and luxury apartments range from US$3 million to US$15 million.
What you can buy for US$17 million
The penthouse at Le Rêve, Dubai Marina. With 1,333 square metres of living space, a private gym, spa and indoor pool, this new build in Dubai’s most luxurious high-rise commands 360-degree views over the sea and Palm Jumeirah.
What you can buy for US$100,000
A one-bedroom apartment in a central tourist area of Dubai. Built in 2012, it has 24-hour security and shared use of a pool, gym and sauna.