Pros and Cons of investing in Dubai
Interesting area, very buoyant at the moment, but do you really know all about the property market in Dubai?
To say this is an interesting post is an understatement, it sets off as a normal run of the mill pros and cons post but suddenly all of the hidden elements of the Dubai property market come into play and it maybe does not look as straight forward as you might have thought.
It is pointed out on a number of occasions that Dubai has been, and continues to be, one of the few safe havens in the property market at the moment. The area is on the up, oil revenues are flying high and businesses are being attracted to the area in droves bringing with them more and more personnel. But is the property market getting a little over heated? Is it due a correction?
The general consensus seems to be that construction is currently a little ahead of demand and at some stage price rises will start to slow down. However, when you also consider the new companies looking for exposure to the area (US giant Halliburton was mentioned) and the fact that you can affectively buy a visa with your property there is a feeling that demand is not about to start slipping at the moment.
On a more basic level it seems as thought the laws which govern the property market, tenant’s rights, etc, are not as clear as they should be and could see the number of rental disputes increase unless this is addressed.
Summary
While Dubai has been one of the darlings of the property market for some time there still seems to be a level of demand currently not seen any where in the world today. The tax regime is very attractive to investors / those who want to move to the area and it seems as though more large corporates are eyeing up a base in Dubai. This has all led to a massive influx of foreign money and a seemingly endless demand for property in the area, even though the property market is fair from cheap.
However, one of the more worrying elements of Dubai is the fact that the laws which govern the property market are fairly vague and open to interpretation in many areas, something which has seen a number of rental disputes of late. There is also an interesting observation about the life of a property in Dubai and the claim that it is only 25 years due to the extreme weather conditions. While this is not something which seems to have been covered in many property sales brochures it may be something to investigate further.
Dubai, like many other areas of the middle east, is riding high on the crest of the oil wave at the moment but even prior to the hike in the oil price it had been attracting growing demand. When you throw in the tourist market in Dubai and the growing number of visitors there is plenty to be positive about in the short term. Whether prices have moved ahead a little too quickly is a different matter although some are looking for a small short term correction as a possible buying opportunity.
Hi…
We've just taken posession of our Jumeraih Lake Towers flat (in Saba II). It was just over 2 years late in arriving but well worth it as the quality of fittings and fixtures are exceptional.
We are letting it on a 'Short Stay' basis initially until the market here settles down, but up till now we are very happy with both our investment and the rental returns, which are at least double the current UK rental returns.
Regards
Paul
I would be very interested to know if the market has settled down there yet from your presepective. From what I have been told recently, there seem to be a lot of empty properties there at the moment, which will only drive the rents down.
I have an apartment in Marina ,the area is out class & rent i am getting is ok the tenent is good & he love to live in this apartment.The low for properties are sancable with no worries to landlord.
How does the conveyancing process in dubai compare to the UK conveyancing process?
Hi,
I have offer to buy one office in Creek Towers Abudhabi ( Al Reem ) please guide me about the is it worth to buy the office over there i have heard that the builder has not started the construction as yet and they have committed to give the possession on Nov 2009.
I bought aproperty at the Hanover square in Jumeirah village which the promoters ACW holdings and their agent Skycom invetsment says is delayed by one year still they are cahrging ineterst for late payment etc Is ther any place I can complain Rera has a phone neumber to call but no online email complaint or advice service can you please help.
One can see the nagative blogs on various website about this developer which I am sure authorties in raera will also have seen but appaers to do nothing about
Regards Kamar Zaman
I too am investing in Hanover Square and the construction work has just started. I cannot understand people complaining about being charged for late payments – the due dates are set out before you sign the contract. If you're charged for late payments then that is only your fault regardless of any delays in construction!
Dubai at the moment??? Developments cancelled, contractors/sub contractors of
developments etc., not being paid for works completed – the bubble has burst and redundancy has become an issue. For anyone having a mortgage and getting made redundant there are serious implication. The Government
has to start paying for the Developments that have been completed i.e. Nakheel/Dubai Properties/Emaar and get money back into the economy then it might start to level off.
If the master developer gives extention of payment for a year to developers then automatically the customers will be benefited. Meantime, unit consolidation, refund procedures has to be smooth.
I am an investor and I signed an MOU with the Al Baraka Property developer and CEO Imran Khan back in October 2008 for an investment deal of £100k, I was due for my Investment return on the 4th of March 2009. Apparently the CEO has gone into hiding and his office staff will not tell any one where he has gone.
At the moment there are upto 50 other investors who are in the same situation as myself, who have invested with this developer and we are trying to get a criminal case file against him.
At the time of the investment we were advised that the laws in Dubai are very strict and that you have to honour any payments that are due and not default on any agreements. It seems that this is not the case and that Developers who have scammed the investors are not being penalised by the Dubai Authorites.
Investors confidence has throughly been shaken and people still do not know if they will get their original investment amount back even if the returns can not be paid in full.
Speaking at Meed magazine's Dubai Mega Projects conference, Sims said that although the current price upheaval was swifter and sharper than investors and developers had anticipated, it was still part of regular real estate cycles.
'Real estate goes through a seven or eight year cycle, we are at the bottom at the moment, but we will go up again, that's certain,' Sims told delegates.
'Three years from now we will be talking about mega projects again. Prices will go up, property is a solid investment – there is nowhere in the world where you can buy anything for what it cost 10 years ago.'
Although prices would begin to rise slowly once the market hit bottom, the market fundamentals would see more developers being pushed out of the market.
That more would be forced to close within the next few months was highlighted by the fact that the average time length for clients not being paid had risen to between six and nine months, with some owed anything from Dhs250m to Dhs800m, according to figures revealed by Trowers and Hamlins.
'Many developers did little or no market research – or didn't examine it if they did. They thought that it would go on and on,' said Sims. 'People are looking for quality developments now, not places in the middle of the desert with no infrastructure. You have to face reality, some projects are going to disappear.'
Project cancellations
'The key benefit is that weaker players are going to disappear,' agreed Ian Ohan, Regional Director and head of investment transactions at Jones Lang Lasalle. 'Around 50% of residential and commercial projects scheduled for completion in 2009 to 2012 have been cancelled or put on hold.'
The cancellation of projects has paralleled the anecdotal evidence of an exodus of expatriate workers from Dubai. 'UBS figures predict that the numbers of expats could fall by 160,000 by 2010,' said Ohan. 'It's going to get worse before it gets better.'
Ohan added that developers were likely to face further difficulties, as investors in offplan developments were either in danger of defaulting, or worried by the impact that defaults would have on project completion: 'People who bought off plan in the last 18 months bought at prices that were likely to be over-inflated. Faced with a depreciation in asset value before even completion, many will be considering cutting their losses and defaulting – which in turn enhances the fear factor of the impact of defaults on projects underway for the remaining investors.'
'We believe that 2009 will be a year of correction, 2010 will be the year of stabilisation and that 2011 will be the year of recovery.'
http://www.sole-dubai.com/news.aspx?id=216
Willing investors
Despite the seeming lack of transactions in the property market, there are investors waiting in the wings, although the attractiveness of opportunities is based on Dubai regaining its 'value for money' factor.
'If prices do adjust and Dubai does become competitive, then the appeal is definitely still there,' said Ohan. 'Investors are there, but for now they are looking at niche deals; industrial, healthcare, labour accommodation, education, smaller cash plots – things like that.'
Cirrus Developments recently announced the creation of a fund to acquire distressed assets and companies, and Gulf Housing is also one of the companies looking to spend in the market. 'We are cash rich,' said Sims, 'we are in the market for acquisition – we are just waiting for prices to return to reasonable levels.'
The long-term outlook for Dubai remains positive with the emirate currently offering a range of options for “opportunistic” investors.
Yields are also likely to increase in the medium term even though capital values decrease ahead of rental values, said a new report.
“As with other markets, Dubai is expected to see a flight to quality, which will make the selection of high quality well located assets with a stable long-term income stream of paramount importance in sustaining value for investors,” Jones Lang LaSalle (JLL) said in its March House View on Mena real estate.
However, real estate developers in the Middle East and North Africa (Mena) will have to move from “develop and sell” business model to one based on “securing tenancies and holding assets” to gain sustainable long-term income flows.
Although the market in the region has showed “signs of recovery” over the past three months, JLL said it expects “2010 to remain a year of relative stability before the markets experience an upturn as they move into the recovery stage during 2011.”
“New market conditions now demand a new business model. This new business model is likely to see the Mena markets become more like those in more mature western economies, with a shift away from a short-term trading mentality to a long-term perspective focussing on the quality of the income stream generated from the completed property.”
JLL said the current shortage of liquidity to speed up the pace by which real estate markets across Mena transition to a more mature, global model of financing for both development and investment.
The previous business model, with development being funded largely through off-plan sales and developer finance, has proved successful in fast tracking the pace of development and has allowed markets across Mena to develop much more quickly than those elsewhere in the world.
“The path to this new investment paradigm will be challenging. While there will inevitably be short-term pain as prices continue to adjust downwards over the next six months, the region is well positioned to emerge with a stronger, more transparent, better regulated and more sustainable pattern of real estate development and investment in the longer term.”
During the transition period, the local markets will diverge with a more distinct pattern of winners and losers, with those properties that are well located, well maintained and well marketed retaining their value relative to the general market. This transition will undoubtedly provide significant opportunities for those investors with access to finance who are able to adopt a long-term investment horizon, said the report.
JLL expects that after this transition period, the region will be “well positioned to emerge with a stronger, more transparent, better regulated and more sustainable pattern of real estate development and investment in the longer term”.
According to the report, no recovery in the Mena’s real estate markets can be expected until confidence returns. The company identified a total of 17 primary factors that influence the level of sentiment or confidence across the region.
“While some of these influences have now stabilised, none of them are yet showing any signs of a sustained recovery. None of the requirements listed yet have therefore yet reached the achieved status [green light].
“This reinforces our view that real estate markets are likely to decline further during the year 2009 before stabilising in 2010 and recovering in 2011.”
A prerequisite for any real estate market recovery is for the global financial markets to be recapitalised.
Governments around the world have intervened to re-capitalise the banks and those in the Gulf have made considerable and concerted efforts to underpin the financial sector over the past two months with significant levels of liquidity being injected directly or indirectly.
There is also some $2 billion (Dh7.3bn) of equity that was raised for real estate investment across the region over the first three quarters of 2008 that is currently waiting in the wings.
“Much of this capital is now seeking deployment opportunities as investors seek to take advantage of distressed asset sales, which are becoming available on an opportunistic basis.”
Additional capital is beginning to pool as investors regain their balance and refocus on regional opportunities. Some previously internationally oriented investment funds are being redirected to the region.
Institutional investors are now looking more strategically at assets with long-term contractual income generally with five- to 10-year leases with strong covenants.
Smaller deal sizes are more attractive owing to restricted debt markets and more limited and valued equity.
“This is leading to increased interest in alternative asset classes including industrial and work force accommodation as well as deals in the education, healthcare and infrastructure related sectors.”
The credit crisis has resulted in a severe downturn in demand for commercial office space in most cities across the region.
Demand has slowed to a trickle and many of the larger corporate requirements that were looking to lease or pre-lease space over the first three quarters of last year have turned into potential requirements with time-lines being pushed out to 2010.
While vacancies remain minimal in Abu Dhabi, Riyadh and Jeddah, they have increased significantly in Dubai where vacancies now exceed 15 per cent, resulting in rents halving in some locations.
“This is clearly a positive for those occupiers looking to expand their operations as landlords have come to recognise the value of their tenant’s covenant and are now becoming more accommodating of tenant’s needs for lower costs, better facilities and long-term leases.”
Regional outlook
ABU DHABI: While both demand and prices have fallen over recent months, we see significant long-term potential for Abu Dhabi market. The market is dominated by government-related companies who are beginning to proactively intervene to rationalise and delay projects, thereby avoiding potential future over supply. The financial strength of the government will also provide a solid platform for continued infrastructure spending over the next few years. As with other markets, decreased construction costs and falling land values will result in higher returns, particularly on those projects at early stages of development.
SAUDI ARABIA: By far the largest of the Gulf markets, the opportunity for developers to capitalise on the significant shortage in middle and low-cost housing abounds. While the mortgage industry in the Kingdom is currently somewhat limited, the growth of the end-user financing market will assist developers and investors in this sub-segment of the market.
Although decreased oil prices will affect the economy and the ability to fund major infrastructure projects, Saudi Arabia possess a depth of underlying demand that is missing from many other Gulf markets.
QATAR: The richest country in the Gulf in terms of gross domestic capital capita is somewhat better insulated through its large and more stable income from long-term LNG contacts.
The looming oversupply in the residential and office markets will however challenge the market in the short term.
BAHRAIN: The country is also likely to see higher potential returns due to falling prices, lower construction costs and the availability of more distressed sellers in the face of increased oversupply in the luxury commercial and residential markets.
Bahrain also benefits from having one of the most established regulatory environments in the region.
KUWAIT: With prices having fallen 40 per cent to 50 per cent for land and up to 30 per cent for built product, increasing opportunities are emerging to acquire attractively priced assets from distressed sellers. Kuwait is well positioned to benefit from the stabilisation and subsequent opening up of the Iraq market.
NORTH AFRICA: Compared to the GCC, finance for real estate development and investment remains relatively available for both equity-only investors and those requiring financing.
Dubai property prices to 'trough' 70% down on peak
A report by Swiss finance house UBS' Investment Research analysts concluded that Dubai's residential property market still had some way to go before beginning to recover.
'Our proprietary analysis concludes that Dubai residential property may trough at around the Dhs500-Dhs800 per square foot level, down 57%-70% from the peak of Dhs1,850 per square foot,' said report author Saud Masud. http://www.soledubai.com/news.aspx?id=330
The UBS report also downgraded Emaar and Union Properties (UPP) to 'Sell' from 'Neutral', while Abu Dhabi developer Aldar was downgraded to 'Neutral' from 'Buy'.
The downgrading of the developers comes despite short term market rises of 40% for UPP and 33% for Emaar. This is a result of what UBS sees as weakened real estate fundamentals in the emirate from Q4 2008 to Q1 2009; listing a lack of net new demand, investor defaults, increase in project cancellations to 70%, payroll cutbacks, and a build up of inventory.
The report also states that it sees Dubai as still being in the 'relatively early stages' of the property downcycle, and that the risk-to-reward ratio was not yet compelling for investors.
House price fall
UBS estimates for house price falls to date put the decline at 25% down from the peak. A similar report on Dubai's real estate sector released last week by UAE-based Asteco put apartment prices down by 39% in Q1 2009, with villa prices down by 43%.
'We believe that the majority of investors would prefer to stay on the sidelines and revisit potential purchase opportunities in the second half of 2009,' said Masud, although the report cautions that depreciating rental returns could dissuade some investors. 'As we move past the summer season and potential for expat exits picks up, there is the likelihood that rents begin to drop faster than home prices thereby compressing rental yields to mid-single digits or below.'
The potential for a fall in expatriate tenants is of concern to buyers looking to use rental payments to cover installment payments, with analysts predicting a fall in the expatriate workforce as Dubai-based companies downsize.
UBS predicts population outflow equal to a decline of 8% in 2009 versus 2008 figures, and a further 2% in 2010 – leading to residential vacancy rates of up to 30% by Q4 2010.
Legal changes
The Dubai government has indicated that it is to make certain amendments to article 11 of property Law 13 2008, regulating the system of dealing with defaulters.
Law 9 of 2009 will serve to clarify how much developers can keep if investors default on payments. If at least 80% of the project has been completed prior to default, the investor loses all money paid to that point. The property will then be auctioned as compensation to the developer to account for the missing increments.
If at least 60% of the project has been completed prior to default, the developer is entitled to keep 40% of the original purchase price. If less than 60% has been built the developer is only entitled to keep 25% of the purchase price.
If construction has not been begun prior to default, but this is not due to 'negligence or omission on the developer's part', the developer may keep 30% of the installment money paid up to that point.
I think that investing in Abu Dhabi is a better option.
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hi,
now the situation in Dubai is different .The real estate market as completely gone down .The rent for appartment and villa as reduced to 40%
It was a nice article with a clear prediction but obviously the time had pass and the dubai property business is in the Milkyway galaxy. It probably not get out until the famous date of 2012.
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I do not think that Dubai is not in the best situation at the moment.
The whole eco-foolishness of the mad property bubble was evident from it's inception. A city built in a desert by slaves from Pakistan requiring God-knows how much desalinated water to keep it and the golf courses running is never going to be sustainable in the broad sense. Investment there never appealed to me.
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Ladies and gentlemen , I purchased a property in THE MATRIX in sports city in Dubai . After 8 years of delays the property is now complete and I noticed that when signing over the registration that the property is in fact near enough 200 sq ft smaller than what I paid for .i was promised 745 sq ft and what I have been allocated is a unit that is 545sqft . I have complained and the company offered a bigger unit but hen unreasonably withdrew their offer as I asked further questions about veiwing pictures and trying to negotiate them to pay admin fees etc . They revoked the offer and i don’t know what to do . Rera were copied into emails but so far no one is talking . What am I supposed to do in this situation . I am based in London and I have been messed around enough . Any advice from anybody ???
Ladies and gentlemen , I purchased a property in THE MATRIX in sports city in Dubai . After 8 years of delays the property is now complete and I noticed that when signing over the registration that the property is in fact near enough 200 sq ft smaller than what I paid for .i was promised 745 sq ft and what I have been allocated is a unit that is 545sqft . I have complained and the company offered a bigger unit but hen unreasonably withdrew their offer as I asked further questions about veiwing pictures and trying to negotiate them to pay admin fees etc . They revoked the offer and i don’t know what to do . Rera were copied into emails but so far no one is talking . What am I supposed to do in this situation . I am based in London and I have been messed around enough . Any advice from anybody ???
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