Property & Investment in Dubai: Your questions about the market

[Admiror]

High rents to drive freehold boom: experts
16-May-2005



CEO Asteco Elaine Jones said "We're seeing colossal demand for well-maintained, affordable properties with amenities like gym, swimming pool, and underground parking," "There is some new construction, but this is falling well short of demand. A better investment right now would be to put money into buying a home, but an Abu Dhabi freehold law needs to allow full ownership with the right to demolish, renovate, or expand the property."


Landlords can implement 10-20 per cent rent increases after every two years according to the new Abu Dhabi rent laws. Asteco analysts say rent reductions look
unlikely in the remainder of the second quarter, with many landlords entering into the new rent cycles this year.


Rapid population growth is forcing prices up in Abu Dhabi. From a population of just 140,000 in 1980, the UAE capital is home to 600,000 today, and city planners expect its numbers to swell to 1.35 million by 2020. With the rents up by an average of 8 to 10 per cent since December 2004, the cost of Abu Dhabi office space is also soaring high.With the occupancy approaching 100 per cent, the average rents for new buildings are now AED600 to 650 per square meter.

[Dubai_Steve]

Dubai's property market has begun to soften much earlier than expected, after a strong growth in demand over the last few years, developers said.

A number of new players have surfaced in the resale market over the last few months hoping to take advantage of high demand for new units, and fuelling speculation.

Until recently, some bookings of unbuilt apartments were changing hands at 100 per cent premiums.

Some of the biggest developers, including Nakheel, recently warned speculators not to inflate the market.

Private developers last year indicated that strong investor demand, mostly based on increased resale transactions and speculation, would sustain the market for a few years.

The scenario, however, is changing, although this may be a temporary slowdown, developers say.

They say new developments are no longer selling so quickly, and resale margins on unfinished properties are falling. "A lot of people are not getting the expected resale prices on their purchases," Faris Saeed, general manager of Diamond Investments, told Gulf News.

Developers say this is the beginning of a "correction phase" that will help the market to stabilise.

"The market is in the correction stage. Many new buyers are waiting for the new federal law, which we expect, will eventually legalise the freehold property market," a senior official of a private development company which is selling residential units to expatriates said.

This is happening, surprisingly, as land prices are going up, due to the announcement of new projects and infrastructure developments.

Dubai witnessed land deals worth Dh843 million last week.

However, developers expect the property market to pick up once a new UAE law introducing freehold property ownership for expatriates is introduced later this year.
"This will encourage more expatriates from the rental market to enter the freehold market as they will be able to receive title deeds in their name.

"It will also help the market to stabilise further," a developer said.

There is no UAE law at present that allows freehold ownership by expatriates.

"The UAE Constitution says that land law comes under the jurisdiction of the individual emirates' Rulers.

"It also says that individual emirates' laws should not conflict with federal law but there is only a vague reference in the federal law to the ownership of fixed assets.

"In essence, the federal law is silent on whether foreigners may own land and buildings," according to the Economic Report of the National Bank of Dubai.

Saeed said, "From what we hear, the law will be an advanced one and will legalise freehold property for the expatriates.

"The market is currently softening as new investors are waiting for the new law to be issued. The profit margin in the secondary market is also not that high, compared to what it was last year."

In some cases, investors are not getting the expected price of the apartments, he said. "We will see further stabilisation in the market in the coming months," he added

[juiced]

Good news, Steve this might mean prices will not be going up by a further 40% at the Marina.

[Dubai_Steve]

juiced, I thought you would want them to go up as fast as possible since you bought there?

Im not sure this is true - the new torch tower was released a few days ago and is almost 40% sold out already.

I dont know what all the fuss is about regarding freehold law - it will come one day but that doesnt really affect anything - you just get a tempory lease until the law is passed. You can still rent out or resale your apartments and make some cash. Doesnt really affect anything?

[juiced]

True, but the higher prices go, the greater the chances of the bursting of a bubble (if there is one).

BTW Check this link, it's VERY interesting.
http://www.7days.ae/content/view/1336/12/

The media in the UAE, and Dubai in particular, has undergone a rapid transformation over the last few years thanks to greater competition, and a more liberal stance from both business and the government. However, there remains a lack of clear guidelines over what can and cannot be printed. The result is a broad spectrum of publications, some of which push things to the extreme, and others that conservatively stay well within known bounds.

‘The line’, delineating what can and cannot be said is long and squiggly-looking depending on what area of public life it is snaking its way through. But one of its boundaries has been found this week, by our friends at Arabian Business, who made some insinuations about the acitivites of some public relations executives on a press trip to Amsterdam with a major company, which, it appears, does not take kindly to inaccurate suggestions that its PR team took advantage of some of Amsterdam’s more leafy offerings, and has responded by pulling advertising from the whole of ITP, Arabian Business’ publisher.

The company spent about $1 million a year with ITP, so this could turn out to be a rather expensive error, depending on how long the boycott stays in place.

Thank you Arabian Business, for finding the line for us. At the other end of the scale, we have evidence that taboo-reinforcing Gulf News has recently spiked a column because of its questioning of the property market in Dubai.

Entitled “Dubai: are you a fantasy or a miracle?” The piece questioned whether or not planners are turning the city into an entertainment park, and called for some real debate on the future of the city, a pretty reasonable request, you may think, considering the rapid pace at which Dubai is evolving.

One wonders whether it was a desire not to upset the decision-makers in Dubai, or whether it has something to do with the fact that its parent company Al Nisr Media recently launched a magazine called “Property Weekly” that relies on advertising revenue, partly from those city planners.

It would be wrong for me to hazard a guess, but I will leave it up to you to make up your own mind. Of course, ad revenue mght have had nothing to do with the decison. But it seems fair to say, though, that the line was nowhere in sight when that particular decision was made.

[Dubai-Lover]

i don't trust all these articles

one article says the market will grow even more
another one - like this right here - says it's slowing down

one day there will be a crash for sure, simply because they have to set the prices down as it's impossible to get some 200.000 people in the completed towers simultaneously in 2007
once the apartments & villas are cheaper more people can afford to move in.
then the occupancy rate will grow, the prices will rise again to what they're now

maybe this even is the way dubai wants it to be?

i only see a "short-time crash" for dubai's property market.

[juiced]

How badly will the market crash do you think? Do you see prices returning down to original price levels, and then up again?

[Dubai_Steve]

Dont think prices will go down at all - they will maybe stagnate a few weeks before going up again. Prices are still very reasonable and affordable in Dubai, plenty of room yet for growth. Also rental yields are very high which means prices should still go up according to economics. Only when rental yields fall low do you see any sustained slowdown or drop in prices. I think the property demand will be greater than the supply of property that will become availble in 2007 & 2008.

[Dubai-Lover]

i have a feeling the crash will bring the prices back to where thy were at the very beginning.

this means all the investors will lose a hell lot of money in the worst case or they won't earn what they hoped to earn one day.

technically it's impossible to get so many people into the country within 1 year. besides all of them have to be able to pay the current prices which will rise even more until projects are completed in 2007.

we should not forget how many people dubai needs to fill all residential units in 2010. MILLIONS!!! this will never work!

but again, once more people can afford an apartment or villa in dubai due to the low prices caused by the crash
the big advantage is that dubai as a city will be very new and extremely beautiful, as everything is masterplanned. people will love it! this will lure people to dubai, filling the units.

[juiced]

That makes a lot of sense, just one last thing, *when* do you think the crash will happen?

[smussuw]

Experts say that there is something called apartement cricle. It is five years long. So every five years the prices tend to come back to its reasonable and right price whether it is higher or lower. So if Dubai circle started at 2001 then 2006 will be the year to see whether there will be a crash or not.

[Dubai-Lover]

as soon as a few hundreds of towers & villas have been completed
make it 2008
and a lot more will be finished after the projects to be completed in 2008. a hell lot!
just think of the following:

what do you think? how many people will be able to live in the following projects??

dubai waterfront
jebel ali airport
palm deira
palm jumeirah
palm jebel ali
DUBAILAND!!!!
business bay
park square
the world
difc
burj dubai complex
media city
silicon oasis
jumeirah islands
dubai marina
jumeirah lake towers
the lost city
jumeirah gulf estates
festival city
emirates living
international city
jumeirah village
discovery gardens
the views @ emirates golf club
the gardens
international media & production zone


these are the projects which offer residential units

you can easily put 5 million+ people in these!!! and we know there is more to come, much more!!!
arabian bays
seven pearls
the arabian canal @ dubai waterfront and jxb airport
....

how do you plan to get 5 million+ people to buy an apartment/villa until 2010???????????

[Dubai_Steve]

Many or most of the aprtments will be rented to tourists - Remember Dubai is pushing for mass tourism. It still makes sense for an investor to buy whether or not prices go up or down becasue the rental yield is very high because of this all year round tourism.

The idea is you pay around 50 or 60k as 20 or 30% deposit - then the rent pays off the mortgage in 10 years or less - leaving you with a rental income for life. So 50% may be rented to tourists and another 50% for people to live in perhaps.

So maybe on 2.5 million are required by 2010 ? and I think the population growth is supposed to exceed this isnt it?

[juiced]

I think the beginnings of the 'crash' has already begun.
Even though Jumeirah Village was launched and sold months ago, premiums are seriously struggling. You can find villas there for only 4% premium
Premiums on new developments are very very low and the market is not as busy as before.
But when apartments flood the market in 05/06, prices will start to go down.

[Admiror]

The question is ; who initially came with the idea of building hundreds of thousands of apartments in the first place?? Is it just a government lead race to make more money out of the projects or was this actually planned keeping the demand in sight? I find it a difficult idea that thousands of poeple are making a mistake in the estimation of future property market at the present and just buying for the sake of buying. One of the ways to look how reasonable prices are could be to look at apartment / villa prices in other capitals of the arab world e g Riyadh, Doha etc. and to give Dubai the advantage of being the future "entertainment city" as well as a mass tourist attraction.I personally think that prices would not drop by more than 5 % of what they are at the moment. However, it is very likely that the from now onwards the increase in property value would be quite gradual (not that steep, for sure). What will make a crash is if for some reason Dubai failed to meet its dream of becoming the future tourist hotspot.

[Dubai-Lover]

the real question is:

what do dubai's leaders really have in mind?
i mean, they know how many projects they have and how many units these will have!
they know it will be dubai's toughest job to fill everything.

i think they have something in mind to attract even more people. whatever it is.

[juiced]

Freehold property cannot really be bought in other parts of the Arab world (by expats) so there is not much to compare it with.

[Dubai_Steve]

Dubai property investors are a pretty smug and self-satisfied bunch. Those who bought early have made spectacular profits, and almost everyone has been a winner so far.

But inflation could prove the icing on the cake for local real estate investors. This will drive up local rental prices even further, and improve rental yields. House prices will follow rents upwards. And for those who borrow against their investments, inflation will erode their debts.

The only losers here will be those who do not buy property, and continue to rent, hoping perhaps that at some point in the future the market will undergo a big correction. However, the burden of rising rents may prove far higher than any savings that they could conceivably get in the future.

You only need to look at how much you will pay out in rent, and then ask, 'will I really be able to buy this five bedroom villa for $300,000 less than today in five years' time?'

Actually, when you think about the effect that rising general inflation in the UAE is likely to have on house prices, then any fall back in prices will probably be from a higher general price level than that seen today - which is universally agreed to be low by international standards.

In real estate the general rule of thumb is that buying and gearing up makes very good investment sense in a rising market. In a falling market - such as the UK today - renting is definitely better than buying, as the gearing works in reverse in a falling market.

But how likely is the UAE to become a falling market in the current frenzied investment environment, with more than $100 billion committed to projects in Dubai alone, and Abu Dhabi now beginning to plan its own massive expansion programme?

There might be a case to answer if real estate was expensive in the UAE, and all the good news was therefore in the price. But that is simply not the case. Moreover, the UAE has an outstanding economic outlook, thanks to ownership of 10% of the world's oil reserves and an enlightened government.

Buying property under these circumstances still requires the normal application of due diligence and common sense. But as High Highness Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum has said, sometimes the biggest risk is not taking a risk.

Those who are paying outrageous rents in a few years time, while those who bought homes are paying monthly mortgages that are practically unchanged, will rue the day that they ignored these words of wisdom!

[Admiror]

Everybody however, should keep in mind that rising hose prisec and high rents is not a welcome news for the economy as a whole. As is the case now in Dubai, companies offer accommodation or rent advantages for skilled workers. If the prices are going to rise endlessly, the possibility is that the comapnies will stop doing that and poeple will have to find their own accommodation arrangments. This will clearly drive the skilled force out of Dubai as at the moment it is only possible to make savings as you do not have to pay the rent yourself. So for Daubai's economy in the long run, the best news will be house prices coming down, not going up. I think this is one of the key points why so many units have been planned ----to bring the rents down in the long run. This will automatically bring the house prices down as well----the correction phase---as it is called.

[Koi]

Originally Posted by Dubai_Steve

Dont think prices will go down at all - they will maybe stagnate a few weeks before going up again. Prices are still very reasonable and affordable in Dubai, plenty of room yet for growth. Also rental yields are very high which means prices should still go up according to economics. Only when rental yields fall low do you see any sustained slowdown or drop in prices. I think the property demand will be greater than the supply of property that will become availble in 2007 & 2008.

You are always very positive about Dubai property investment. Can you see that prices cannot go on rising forever (speculators and government controlled media are driving up prices). When all those developments are completed, rental yields will fall because supply will be greater than demand, which mean less people wanting to invest in property.