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Dubai has re-entered the list of top cities for real estate investment, according to Cushman and Wakefield’s capital markets research Winning in Growth Cities — 2014-15. Investment volumes in the emirate rose by 2,174.3 per cent annually to reach $3.68 billion (Dh13.5 billion). Earlier ranked 186th in terms of growth, Dubai property market has made a huge jump to the 39th position, signifying its status as one of the world’s hottests.
In the past couple of years, property and rental prices in Dubai have soared, while salaries of residents remained mostly stagnant. However, the sector is now registering more realistic and sustainable growth as a result of government intervention, including the implementation of new regulations to rein in uncontrolled expansion.
“Over the two years to June, average residential prices in Dubai increased by nearly 60 per cent, far in excess of salary levels,” says Craig Plumb, Head of Research — Middle East and North Africa at JLL. “This made Dubai a less attractive city to live and work in.”
However, Plumb says the market is now stabilising with less volatility in prices.
The right mix
With new supply of both off-plan and ready properties over the year, buyers are in an advantageous position. “The rise in supply of off-plan projects in the market [will possibly lead to] a drop in property prices in certain areas of Dubai because buyers now have more choices to select from compared to last year,” says Manish Khatri, Vice-President of Business Development and Investments at Aqua Properties.
“The market has all the right ingredients that make it sustainable such as government and bank regulations, infrastructure, mandatory implementation of escrow accounts, tighter norms for brokers, more professionalism, a streamlined purchase process and even the completion of projects on schedule. These factors have increased people’s interest in the sector and even raised their confidence in buying off-plan.”
The growth figures are now reaching sustainable levels, points out Khatri, with softening prices, strong fundamentals and more people and businesses coming to the city, making the property market more appealing for end users as well as individual and institutional investors.
The presence of long-term investors is a key component in the strengthening of a property market as they demonstrate long-term interest and occupier commitment, adding to its stability.
“Confidence and stability in a market, which, in turn, attracts long-term investment sources, can only be achieved through market transparency and a robust regulatory system,” says Rob Jackson, Director — Middle East and North Africa at the Royal Institution of Chartered Surveyors.
“Adopting international standards and imposing appropriate regulations become fundamental to sustained and steady growth, helping markets earn their place as top competitors on the global stage.”
In an attempt to promote market transparency, the Dubai Government adopted the International Property Measurement Standards (IPMS), which are used to measure properties across international markets. It became the first government in the world do so.
“The IPMS will ensure that assets are measured in a consistent way internationally, creating a more transparent marketplace, greater public trust, consistency in the reporting of property size, stronger investor confidence and increased market stability,” says Jackson.
“Furthermore, it ensures that consistent building measurements are being used for property valuation purposes. The use of local valuation and property measurement standards can cause confusion, particularly among international investors. Therefore, to attract international investment, a market needs to ensure it adopts international standards such as the IPMS and the International Valuation Standards, underpinned by strong professional ethics.”
Jackson adds that there is a clear correlation between market transparency and institutional investment activity, quoting research by JLL. He says Dubai is a front runner in terms of market transparency in the Middle East and North Africa (Mena), and one reason for this is the Real Estate Regulatory Agency’s performance as a regulator.
“Yet, despite the positive steps taken to date, there are still areas for improvement in [terms of] transparency and data availability such as public access to transaction data,” Jackson says.
A sustainable market develops a credible reputation over a long period of time. For example, investors have a high level of confidence in the London market.
“The Dubai Government has introduced various legislations that are expected to add credibility, promote investor confidence and provide a solid platform for future growth as the market moves forward towards becoming more sustainable,” says Jonathan Jeffrey, a surveyor at Knight Frank.
The legislative measures implemented to cool Dubai property market include the rent cap law that limits the extent to which landlords can increase rents, the increase of the property transfer fee from 2 per cent to 4 per cent, and the UAE Central Bank’s new set of regulations issued late last year regarding the maximum loan-to-value ratio for completed and off-plan properties.
“Over the past 12 months, the residential market has outperformed the commercial market with rents increasing by 17.5 per cent and 10 per cent respectively,” says Jeffrey.
“However, overall growth has slowed down in the past six months as more speculative-driven buyers have become hesitant, primarily driven by the introduction of the cooling measures.
“Looking ahead, double-digit growth in both sectors can become harder to realise.
“Further legislation will continue to add credibility to the market, and although transaction volumes are down for the first half of the year against the same period last year, there still remains interest from local and regional investors,” he says.
Destination of choice
Simon Gray, Managing Director of Chestertons Mena, sees many international firms moving their regional headquarters to Dubai or hiring new staff. He says the emirate remains the destination of choice for global businesses, driven by its strong economy, stable political environment and world-class infrastructure.
“Since last year, several major corporations have set up shop in Dubai,” says Gray. “These include LUKOIL, the Russian oil giant, which moved the headquarters of its overseas division from Moscow to Dubai. Global Hotel Alliance, the world’s largest alliance of independent hotel brands, has relocated its head office from Geneva to Dubai. Other international brands that have recently chosen Dubai as their regional headquarters are LinkedIn, Facebook and FTSE.
“What attracts foreign investors to Dubai is its state-of-the-art infrastructure, strong government support and safe haven status. Dubai has been on the radar for international investors and this will only grow further in the future.”
Source: Hina Navin, Special to Property Weekly