Weekly Dubai real estate news digest. Issue 54

Dubai development extravaganza
Welcome to the fifty-fourth 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 54 |  July 13, 2014

Dubai development extravaganza

Despite a rocky few months for Dubai's stock market, the emirate has upped its game, bouncing back in the limelight with its announcement of - yet again - the world's largest shopping mall.  

The Mall of the World will occupy 8 million square feet, approximately one-and-a-half times the size of Dubai Mall. Dubai Holding, the investment vehicle of the emirate's ruler, will need AED25 billion to build the entertainment district that will include the mall.

While the plans have caused some analysts to warn that Dubai risks overbuilding again (as it did a decade ago), chief executive Ahmad Bin Bayat believes there is a demand for such projects. "The way things are growing, I think we are barely coping with the demand...tourism is growing in Dubai." The whole project will be built over 10 years and Bayat explained that the funds will be raised gradually over that period.

However, this isn't the only mega project Dubai has in store. Last month, Los Angeles-based company Reef Worlds (best known for designing sets for movies like Pirates of the Caribbean) announced it was developing the world's largest sustainable underwater tourism site in Dubai. It will transform the artificial island complex - The World - into an underwater tourism attraction modeled after the Lost City of Atlantis.

Moreover, a proposal to build a new smart city in the UAE is also in works, which will see Italian company Stile Italiano Real Estate Industry collaborate with local partners to construct the $25b-30b project. Titled Renaissance City, it will be built over 300 hectares and will have residences, offices, a school, shopping mall, medical centre, library and the UAE's first opera house among other amenities.

Emaar has also launched many new residential projects this year. According to ratings agency Moody's, while Emaar's hospitality and retail assets provide a cushion against market volatility, more developers are launching similar projects and thereby running a risk of overcapacity. "There is a risk that the company embarks on a significant multi-year capital spending plan in the current market up-cycle to not only launch new developments but also expand its hospitality and retail assets at a time when competitors are increasingly becoming active in these sectors," said Rehan Akbar, Moody's analyst and author of a new report.

Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. Undoubtedly, amidst all the new launches, there has been a growing cause for concern that Dubai is heading towards another unsustainable property bubble, something the International Monetary Fund has warned against repeatedly. However, sustained fiscal consolidation and brightening growth prospects have been strengthening Dubai's resilience to external shocks as the emirate gears up for an economic upswing, the IMF said in a recent report. The robust growth for Dubai in the coming years will be driven by big real estate projects and spending ahead of the Expo 2020. Ending on a positive note, the IMF seems upbeat about Dubai's ability to finance its debts. As for where the market is heading right now, only time will tell so be sure to follow up on all the latest in our next issue. 


Pashma Manglani


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'Dubai stocks hardly a bargain'

Despite last month's massive sell-down, Dubai stocks are anything but cheap, say analysts.

Sure, valuations of listed companies were brought closer to regional peers, but they are still higher than emerging market averages.

"We're at sensible prices, they're not a bargain," said Saleem Khokhar, head of equities at National Bank of Abu Dhabi. "You have to pick and choose now, whereas before you could buy across the board." 

The Dubai Financial Market general index fell 15% from its May 29 peak of 5,253 points to its June 30 low of 4,290. Dubai is currently trading at 18 times earnings. The ratio is on the higher end of the regional range. Only Saudi Arabia has higher valuations than Dubai, with companies trading at 19 times earnings. 


Read more on The National

Value buying trending in Dubai

Property buyers in Dubai are chasing value at those locations where they see asking prices have yet to go through artificially induced spikes.

Areas such as Jumeirah Village, Dubai Sports City and Dubai Silicon Oasis are receiving a lot of attention as compared to Downtown Dubai and Marina. This search for affordability has ensured that the former parts of the city recorded higher growth rates of around 10% in the second quarter, states a new report from Asteco tracking the period between April to June.

Mid-tier locations such as Dubai Silicon Oasis and International City recorded increases of only 4 and 3% respectively. However, any further growth will position them outside the affordable range and consequently lead to a reduction in buyer interest.   

Read more on Gulf News

More residents opt to stay put

Dubai's existing residents in leased properties seem to be staying in the same place rather than risk having to pay a much higher rental on a new location.

According to an Asteco report on rental trends in the second quarter, "Most transactions came from newcomers to the city, rather than international relocations."

"Tenants have elected to remain where they are and pay the rent increase as indicated by the RERA rental index, rather than moving as this leads to additional costs such as moving costs, agent's commission, etc."


Read more at Gulf News

International City houses cheapest studios: Report

For those looking for a more affordable place to rent in Dubai, Sheikh Zayed Road is definitely some place tenants should stay away from.

However, the cheapest studio apartment in Dubai can be found in International City, according to data compiled by property consultant Asteco. Affordable places to rent can also be found in Deira, Discovery Gardens and Jumeirah Village, which is even farther away, about 27 kilometres from the Burj Khalifa area.

Rental rates for most apartments in Dubai continued to increase in the second quarter of the year, but at a modest pace, between 1 and 10%. Rents in some locations, such as Deira and Sheikh Zayed Road, have not increased a bit, although apartments in Sheikh Zayed remain one of the most expensive.


Read more on Gulf News

Mall of the Emirates to cost AED25b

Dubai Holding, the investment vehicle of the emirate's ruler, will need AED25 billion to build an entertainment district that will include the world's largest shopping mall, its chief executive announced.

Sheikh Mohammed Bin Rashid, vice president of the UAE and ruler of Dubai, announced recently plans to build the Mall of the World, encompassing an 8 million square foot mall connected to a theme park, 100 hotels and serviced apartment buildings with 20,000 rooms. 

The plans, and other new building projects, have led some analysts to warn that Dubai risks overbuilding again as it did a decade ago, culminating in its 2009 debt crisis. However, chief executive Ahmad Bin Bayat said that he believed there was a demand for such projects. 

"That (AED25 billion) is how much it will cost when it's ready. That is in about 10 years so we are talking about a requirement of about AED2.5 billion every year for the next 10 years," he said.


Read more on The National

Emaar faces oversupply risks 

Dubai's Emaar Properties faces a risk of oversupply in the emirate's real estate market, ratings agency Moody's said in a report just as the developer launches new projects and embarks on expansion of its existing assets.

Dubai is still recovering from its 2009 debt crisis but property firms have launched a slew of new housing, retail and hospitality projects - stoking fears of another boom-bust cycle in the emirate's real estate market.

Moody said that while Emaar's hospitality and retail assets provide a cushion against market volatility, more developers are launching similar projects and thereby running a risk of overcapacity.


Read more on Zawya

Nakheel profits up 54% 

Nakheel has announced a 54% leap in profits for the first half of 2014, underscoring the strong recovery in the Dubai property market.

Net profits reached AED1.86 billion in the six months to the end of June as handovers of completed developments reached new highs and rentals approached full occupancy levels.

Ali Rashid Lootah, chairman of the government-owned Nakheel, said: "These robust financial results reflect the growth witnessed in the real estate sector in Dubai, where Nakheel continues to play a strategic role. Since the financial year ending 2010, Nakheel has reported a year-on-year increase in net profit. Our financial performance reflects the strength of the underlying business, increasing investor trust and confidence in Nakheel and the ongoing support of the government of Dubai."

Read more on The National

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