Weekly Dubai real estate news digest. Issue 33

Uncertainty at all-time high 
Welcome to the thirty-third issue of Market Insight, your weekly guide to what's happening in the Dubai real estate market.
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MARKET INSIGHT. Weekly guide to Dubai's property scene
Issue 33 |  February 16, 2014

Uncertainty at all-time high 

As property prices continue to go up, experts are divided on what the future has in store for Dubai - another property bubble or a buoyant market, supported by increased regulations and greater awareness. 

Prices may hit their 2008 peak by the end of this year, heightening fears that another bubble is set to strike. Average real estate prices have enjoyed their highest growth spurt, reaching levels of 22% last year and may grow between 10-15% this year, according to a report from real estate consultancy Jones Lang LaSalle (JLL). Average prices are currently 15% below their 2008 level, which was achieved shortly before prices crashed by as much as 60% in the emirate. 

According to JLL, however, 2014 will not be the year that a second UAE bubble bursts, but it warned that a correction could be looming in the longer term if both house prices and rents continue to grow at unsustainable levels. It predicted that rents in Dubai are set to increase by another 10 to 20% over the year. 

According to Craig Plumb, head of residential at JLL Dubai, "We don't think [price correction] will come in 2014 but we do thing that it could come longer term, and if so, it will be caused by one of four key factors: either an external factor which is financial or geopolitical. Or it could be that continued price growth finally makes the UAE a less attractive place for expatriates to live. Or the final factor could be that resource constraints for either people or materials lead to problems with construction keeping up with demand. In our view, the last of these is the most likely." 

JLL's report of the market's top trends points out that the industry is "smarter" this time around because investors are more cautious, regulations are better and property development is changing, with larger projects being phased in line with demand, less reliance on pre-sales and sub-developers and significant levels of new supply being provided. 

Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. The realty sector is set to witness a series of changes with mounting pressure on lifting foreign ownership limits and prices rising at an unsustainable level. New developments continue to be announced, whether it be through new market entrants or major players like Dubai Investments. We will be following up on reports of where the market is headed towards and what measures are being taken to prevent another bubble and will be sure to keep our readers up-to-date. 


Pashma Manglani


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Pressure mounts to lift foreign ownership limits

Property developer Deyaar Development has become the latest company to consider opening up to outside buyers.

UAE stocks are expected to be incorporated into MSCI's emerging markets index in May - a move that is forecast to attract AED1 billion in investments into listed companies. Last June, the international index complier upgraded the UAE's classification from frontier shares. 

"A foreign ownership of 25% is crucial to be included in the MSCI Emerging Market Index. Many institutional investors that use [the index] as a benchmark would start investing in those UAE names if certain other conditions are also met," said Jaap Meijer, executive director for research at Arqaam Capital, a Dubai-based boutique investment bank.

Increasing foreign ownership limit would also allow companies to "further tap the international markets for equity capital," said Oliver Schutzmann, the vice chairman of the Middle East Investor Relations Society (Mers).


Read more on The National

No property price correction this year

Jones Lang LaSalle (JLL), a global property consultancy, said that the Dubai market was "smarter" this time with investors becoming more cautious and with better regulations in place.

"There has been concern that Dubai will experience another bubble, but there are many differences this time around that makes for a 'smarter' market," said Craig Plumb, head of research, JLL MENA. 

"Some of these differences are that investors are more cautious, regulations are better, developers are less reliant on pre-sales and significant levels of new supply."

He added that though rise in residential property prices was "irrational" in 2013, the rate of increases this year will slow-down. "There won't be any correction in this year."  In 2013, property prices rose by over 22%, while rents jumped by 17%. "We don't expect prices in the Dubai residential market to cross 22% this year. Rent increases will be below the 17% level seen last year," said Plumb. 

Read more on Emirates 24/7

New launches target the elite  

Dubai's developers are busy meeting market demands of premium property.

Al Barari, with its focus on substantial villa plots set in a low-density community, is tweaking its development strategy slightly to come up with apartment blocks. However, on the pricing side, it will remain decidedly upscale, with a one-bedroom villa upwards of AED2 million. 

Another super-premium community is also figuring in investor options. Meydan Sobha has just launched villas at District One of Mohammad Bin Rashid City. Market sources say values at the City are well upwards of AED1,800 a square foot and that limited releases to date have been getting a lot of attention.

Simultaneously, an existing villa community could finally get its leverage right with prospective buyers. Jumeirah Golf Estates is fixing its utility services and that would raise its attraction.

Read more on Gulf News

Dubai Investments expands presence 

Dubai Investments (DI) plans to unveil iconic projects across the UAE in the coming months with projects in Meydan, Mirdif and Jumeirah Village Circle, as well as other developments in Fujairah and Abu Dhabi.

Over 67% of DI's asset base is in real estate, currently worth over AED6.36 billion, making it one of the biggest industry players in the country.

Khalid Bin Kalban, managing director and CEO, DI, said, "The UAE real estate industry is in the midst of robust growth, which is a  reflection on its sound fundamentals and overall business and investor confidence across sectors, be is retail, tourism, aviation, hospitality or trade. As one of the leading companies, we feel the time is right to move forward with developing our land holdings."


Read more on Gulf News

Indian firm to invest AED4b in Dubai realty

With the market picking up, a NRI businessman eyes realty as his next investment, planning to inject AED4 billion in the sector.

Dr Ravi Pillai, chairman of the RP Group of Companies, revealed plans to build four new projects, which include a three-million square feet mixed-use development on Sheikh Zayed Road that will house a five-star hotel, serviced apartments, residences and a retail precinct. 

Other new projects include a five-star luxury hotel in Dubai Marina, which will be operated by Crowne Plaza; a four-star hotel in Bur Dubai to be operated by India's ITC Group and a serviced apartment complex, close to Downtown Dubai.


Read more on Emirates 24/7

Commercial space has lot of ground to cover 

Dubai's office realty has some catching up do to be where its residential space is right now...18 months to be precise.

"It is 18 months since Dubai's residential property value came off its bottom levels while those for offices are still at the lower or very early into an upturn," said Craig Plumb, head of research at the realty consultancy Jones Lang LaSalle. "There's still an oversupply of offices with the bulk of it being non-grade A units, but even Grade A space is still available for the asking. Any growth in rentals will be limited to the very best buildings."

Read more on Gulf News

Revamping Madinat Jumeirah 

The new extension of Madinat Jumeirah, the Arabian Resort, is slated to open for business in the first quarter of 2016.

"Construction work started in the middle of 2013. The opening is planned for the first quarter of 2016," a spokesperson for Madinat Jumeirah told Emirates 24/7. 

The phase IV of Madinat Jumeirah, costing AED 2.5 billion, is being constructed next to Burj Al Arab.It constitutes a 420-room five-star hotel, a villas complex, commercial centre, restaurants with retail stores and a paedestrian precinct. 


Read more on Emirates 24/7

UAE market ripe for REITs 

Real Estate Investment Trusts (REITs) have been discussed in the UAE in recent years but not much action has been taken on this front. 

With market conditions improving, investors are seeking new vehicles to recycle real estate capital and 2014 may be a pivotal year for the development of the REIT market in the region.

REITs were first launched in the US in the 1960s and now own a total of 37,500 properties at a value of $935 billion. Over 20 countries have adopted variations of the concept, resulting in a $750 billion global industry. The key benefit of REITs is their tax efficiency but also they offer investors other attractions, including high liquidity, diversification, stable returns and small capital exposure. 

Market conditions over the past few years and restrictions limiting ownership to assets has been some of the main reasons for lack of interest in REITs in this region. However, progress has been made in these areas over the past year, resulting in stronger interest in REITs in the UAE.

Read more on Gulf News

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