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Dubai continues to be a firm favourite with both tourists and investors and is quickly becoming one of the most popular holiday destinations on the planet as it moves forward with its firm tourism plan and away from a full reliance on oil.
Dubai is home to the world's tallest residential tower and the tallest manmade structure, which holds numerous world-records, Burj Khalifa, named after His Highness Shaikh Khalifa Bin Zayed Al Nahyan, President of UAE and Ruler of Abu Dhabi.
Home-grown airlines Emirates and Etihad have helped Dubai and Abu Dhabi grow into global gateways. With the opening of Al Maktoum International Airport and developments at Dubai International Airport, it is evident that His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, is steadfast on his 2020 Vision, which includes attracting 20 million tourists and Dh300 billion in tourism revenues annually.
Dubai's residential sector continues to see strong demand across both the occupation and sales markets. According to the Dubai Statistics Centre, the emirate's population rose by close to 7 per cent last year, driven by economic growth that is generating employment opportunities for expatriates.
However, the rising cost of living in Dubai is a major concern. One reason for this development is Expo 2020 — rentals have increased by an average of 45 per cent in the past two years.
Mat Green, Head of Research and Consultancy UAE, CBRE Middle East, explains, ''We are already witnessing acceleration [at] the pace of implementation of recently announced projects including the Mohammad Bin Rashid City, but in a wider context, the Expo would also have a substantial impact on overall infrastructure development plans to fast-track the construction of the Dubai Metro, among other projects in and around Dubai World Central. It will also help to drive airport expansion, accelerating its use and becoming a catalyst for the development of the air transport infrastructure and a key driver for the emirate's sustained economic growth.''
''With sustained demand for both occupational and investment properties, we anticipate that residential rental and sales growth will continue throughout this year. However, we expect growth levels to be lower than last year as affordability becomes a more influential driver of property moves. We expect to see an increase in the flight to affordability, with occupiers starting to consider Sharjah and the Northern Emirates as a cost-sensitive alternative to Dubai.'' Says Green.
He says that Dubai's residential sector continues to experience growing demand from both occupation and transactional sources. Close to 17,000 new units are expected to be completed this year, with the majority of these set to be delivered in secondary locations such as Dubailand, Jumeirah Village Circle and Silicon Oasis. Over the next four years, roughly 65,000 new units are penned for completion, with 83 per cent of these apartments, villas and townhouses comprising the balance. One of the main projects in the pipeline is the Dubai Canal project, which will extend the Dubai Creek from Al Shindagha all the way to Jumeirah, transforming Bur Dubai into a new man-made island surrounded by water.
Government initiatives such as these, says Green, are likely to attract significant attention from investors and further consolidate Dubai's position as a regional commercial and tourism hub.
Unlike the rush-and-buy mentality seen in 2008, market fundamentals appear to demonstrate a stronger, more solid occupier demand, a smaller development pipeline, tighter regulations and a healthier global economy. Dubai's economy appears to be more robust, with core sectors such as retail, trade, tourism and industry and manufacturing performing well. Dubai's positive outlook is also being underlined by a recent return of initial public offering activity, with a number of listings in the offing and capital raising activities becoming more evident in local financial markets.
Perhaps of all the Middle East markets, Dubai has excelled the most in attracting investment from across the region. The emirate looks sure to capture the lion's share of investments in the coming years with institutional commitments from overseas as rental and capital values continue to grow.
Part of the renewed appeal of investing in Dubai is the Government's decisive move to try and improve market regulation and protect investors. A number of measures have been implemented over the past year including the Central Bank's new mortgage rules and the Dubai Land Department's (DLD) decision to double transfer fees on property sales.
Steve Morgan, Head of Cluttons Middle East, says, ''The new mortgage cap regulations will go some way to delivering a more stable property market in the UAE and will stabilise the recent surge in activity. But while this is a positive step, 80 per cent of the market is driven by cash buyers according to the DLD estimates, so it remains to be seen whether this latest regulatory measure will have a significant impact.''
The new measures include loan-to-value mortgage limits of 80 per cent for UAE nationals and 75 per cent for expatriates for first investments of under Dh5 million. For second homes, purchases of properties valued at more than Dh5 million and mortgage limits are now set at 65 per cent of the property's value for UAE nationals and 60 per cent for expatriates.
According to Cluttons' third-quarter Winter Property Market Update report, the DLD's recent doubling of property registration fees from 2 per cent to 4 per cent, is already impacting the volume of deals being recorded.
Morgan says, ''The vibrancy in the residential market has resulted in growing confidence in the real estate sector, but we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak. Although the long-term effect remains to be seen, short-term indicators show that recent regulation appears to be stemming further sharp increases in property prices.
''Rather than being fuelled by fly-by dealers, current demand is primarily being driven by a growing population and rising employment levels.''
Meanwhile, Dubai's hospitality sector continues to benefit from a strong tourist demand. After a superb performance last year, wherein average hotel occupancy rates reached more than 80 per cent across the market, this year started with rising visitor numbers and high occupancy rates.
Keys to success
The year will see significant new supply with around 4,000 new hotel keys being delivered. In addition, there are 2,000 hotel apartments set to be delivered during the course of the year. The focus of the new supply is largely business orientated, with the majority of new rooms being delivered in the Business Bay and Shaikh Zayed Road sub-markets, with a lesser supply of leisure-focused resort properties. Although below 2008 peak levels, office rentals in Dubai are showing growth across most key commercial locations, according to a CBRE Middle East MarketView report.
Average prime Central Business District office rentals increased by 10 per cent during the fourth quarter of last year, reaching Dh1,776 per metre squared per annum, with annual growth for the year measured at close to 22 per cent. Secondary office locations have also seen a significant pick-up in performance, with average rentals rising from Dh785 per metre squared per annum in the fourth quarter of 2012 to reach Dh1,054 per metre squared per annum in the fourth quarter of last year. This reflects a growth of 34 per cent in just 12 months, albeit from a low base point.
Office stock continues to rise rapidly in Dubai, buoyed by the restart and relaunch of a number of major office developments over the past 18 months including the Dubai Design District and Bay Square in Business Bay.
It is anticipated that this year will see approximately 0.5 million metre square of new office space completed, representing an addition of 6 per cent of the existing stock.
Over the next four years, nearly 1.7 million metres squared is penned for completion. The majority of this new office space will be delivered in Business Bay, which is already experiencing high vacancy rates as a result of the oversupply of strata ownership buildings.
While there will be challenges ahead, all current indicators show that Dubai's real estate sector as a whole is, to say the least, on track.
Click on Dubai's Real Estate Industry and read about its confidence at an all-time high
Source: Kim Latham, Publishing Editor, Property Weekly