Weekly Dubai real estate news digest. Issue 53

Huge market changes predicted 
Welcome to the fifty-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 53 |  July 6, 2014

Huge market changes predicted 

Investors in Dubai's real estate market and stock market have been enjoying huge returns since 2013 when the emirate bounced back from its financial slump.

Last year, the Dubai Financial Market General Index grew a dizzying 88.3%, but this figure has fallen in recent months as investors run for cover following large losses at construction giant Arabtec. Now, doubts are starting to creep back in. With residential prices leaping 51% in 2013, many fear the market is overheating. 

However, despite the current panic, the underlying property market in the UAE remains in good health, says Warren Philliskirk, associate director at Mortgage International Business in Dubai.

Speculators have been driven out by new rules aimed at preventing speculation, such as the UAE Central Bank's recent demand that buyers put down bigger deposits and the Dubai Land Department double transaction fees from 2%-4%. "Now most buyers are end-users, people who plan to live in the property themselves, rather than looking to make a quick profit. This should make the market much less volatile," says Philliskirk.

According to him, we're looking at a steady growth of 5% a year and the slower growth should help avoid a repeat of the 2008 crash. However, he notes that a market correction is not completely impossible either and that while there might be a bit of a bumpy ride in the short-term, the market will correct itself within a decade.

The Dubai Financial Market suffered a mini-crash after weeks of problems with construction giant Arabtec's stocks.
Shares in the stock exchange, leaving them down 25% from their May peak. To address questions, Arabtec finally held a press conference on Wednesday, assuring investors that there will be no change with the projects. "We terminated a few contracts but there is no change," said Khadem Al Qubaisi, chairman. "The projects will continue and we will replace people with construction professionals... Construction is the backbone of this company."

Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. The real estate market has been going through a shaky period what with Arabtec's falling shares and an oversupply of property. Analysts agree that while the next few months may be rocky, the market will eventually correct itself - avoiding a repeat of the 2008 crash. In fact, according to Peter Cooper, editor, Arabianmoney.net, one should expect a 20-30% correction in Dubai's future. "The outlook for the real estate sector in the UAE and Dubai is positive and this is mainly due to the strong economic growth experienced since 2012," adds Ziad El Chaar, managing director, DAMAC Propeerties. 


Pashma Manglani


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Rents rise fastest in the world

More people are looking to purchase a house in Dubai for living as the increase in the emirate's house rents outpaced all global destinations in the first quarter of 2014.

According to property consultancy Knight Frank's latest Prime Global Rental Index, house rents in Dubai grew at 6% in the first three months, the most in the world - followed by Tokyo (5%) and Geneva (4.1%).  

Prime residential rental growth continues to outpace that of the traditional financial centres of London and Hong Kong.


Read more on Emirates 24/7

Arabtec promises business as usual 

Analysts remain nonplussed by Arabtec's attempts to outline its new strategy despite a sharp rise in the a builder's stock price. 

The Burj Khalifa builder held a press conference on Wednesday to address investor concerns following a catastrophic stock decline in recent weeks. After having reduced its shareholding from 22% in the company two weeks ago, chairman Khadem Al Qubaisi said that Aabar intended to have a "stronger relationship than before" with Arabtec and was considering increasing its current 19% stake.

But this doesn't seem to be enough to restore confidence among analysts. "We're a bit more positive than before, but we still don't believe we have enough information to be able to offer a target price for the stock," said Sanyalak Manibhandu, research manager at NBAD Securities. "We are glad that there appears to be more stability at Arabtec and expect that the news will bring more stability to the Dubai stock market. But in order for us to give a meaningful target price to investors we need more than this." 

Shares closed at AED3.52 recently, a 6.3% increase on the previous day. That helped lift the Dubai Financial Market by 0.2%.


Read more on The National

Oversupply means correction ahead

The oversupply of property in Dubai has increased by almost 8% in the past month if you follow adverts for homes for sale or rent on the Dubizzle.com website that have topped 206,000.

There are a record 116,000 units available for rent and 90,000 for sale. In Abu Dhabi, there are 59,000 units available for rent while 3,800 available for sale.

Peter Cooper, editor, Arabianmoney.net, says that despite this severe oversupply, people can positive about the outlook for the UAE economy with energy prices heading skyward as the Middle East and Ukraine plunge into chaos while still being bearish about the immediate outlook for local property. A 20-30% correction would be a reasonable expectation, he added.


Read more at The National

Construction sector swells with $46b in projects

The UAE construction sector's pace is set to rapidly accelerate in 2014 with the government announcing a number of major development projects and stepping up spending on social infrastructure development.

An April 2014 report by Ventures Middle East's - Exploring UAE's Strong Investment Environment - noted that the new projects, combined with many previously stalled projects now forging ahead, will continue to bolster the 2013 upswing into 2014. The same report remarks that the UAE's GDP for 2014 is set to grow at 4% to reach $404 billion, up from 390 billion in 2014, fuelled by the construction sector upturn and support from the oil & gas sector. 

The report set the value of the country's building construction sector at almost 60% of the total projects in the industry with total construction projects awarded in the UAE totaling $38 billion in 2013. In 2014, the figure for awarded projects is predicted to hit $46 billion.

Read more on Zawya

Opportunities wide open in commercial sector

Office spaces may not be the flavour of the season but commercial property - industrial in particular - sure is. 

Dubai Industrial City, where first quarter vacancy was as low as 5% according to a recent Cluttons report, has been seeing a lot of interest as has Dubai Investment Park's expanding commercial sector. 

Meanwhile, experts note that demand for prime office space will continue to go up. "Over the period of the next 12 months, demand for prime office space will continue to increase as companies upgrade their existing setup or expand their offerings in light of recent positive activity," said Nick Maclean, managing director, CBRE Middle East. "The lack of high-quality offices in the CBD areas and the increased demand from corporates has resulted in rentals slowly rising in prime locations." 



Read more on Gulf News

Banks more generous with refinancing 

For those scouting around for property in Dubai, mortgage approvals can be tricky to get in order when sealing the deal on a home. 

While first-time buyers will need to clear multiple approval stages before getting the money, those with existing mortgage exposures may find it easy to go in for refinancing. "Banks are giving very competitive offers to attract clients from other banks," said Chandrakant Whabi, CEO of Acrohouse Properties. "Clients should make use of this window and reduce the cost of their mortgages, especially in cases where banks are waving the processing fees for loans that are being transferred."


Read more on Gulf News

Capacity crunch looms ahead for ME projects 

A PwC Middle East capital project and infrastructure survey announced that 75% of respondents expect an increase in spending in the coming 12 months. This is largely driven by mega events like Dubai's Expo 2020 and Qatar hosting the World Cup in 2022.

However, the results show that there is a capacity crunch - market capacity fails to keep pace with demand - on the horizon. Ninety-five respondents say their projects are delayed with 45% saying they are delayed by over 6 months.  

"Whilst our survey shows a good dose of optimism, there is a capacity crunch looming which threatens the delivery of projects. It is already having an impact as we are beginning to see more delays on projects that are underway," said Stephen Anderson, PwC's Leader of Capital Projects and Infrastructure in the Middle East. "Broadly speaking, these problems have been apparent in the region's infrastructure sector for several years, but the increase in activity is making them more acute. They need to be urgently addressed if the region is to deliver on its ambitions."

Read more on Gulf News

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