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There is an air of confidence in Dubai. It became noticeable when the emirate won the Expo 2020 bid in November 2013. Perhaps that international victory brought to the fore an already growing optimism.
If there was any doubt about confidence in the Dubai market as sale and lease price growth was slowing, it was dashed by Dubai Holding and Emaar's launch of Dubai Creek Harbour at The Lagoons last year. This joint venture is the revival of a project that was shelved at the onset of the financial crisis. It is as ambitious in scope as in scale — a mega project.
Emaar is also involved in the 11-million-sq-m Dubai Hills Estate with Meraas Holding. But the six-million sq-m waterfront project is the greatest indicator of its confidence, on the back of positive third-quarter results.
The developer announced a dividend of Dh17.12 billion and a net operating profit of Dh2.4 billion in the first nine months last year — up by 37 per cent over the same period the year before.
''The prime driver of our growth is the positive performance of the Dubai economy, which continues to inspire international investor confidence,'' said Mohammad Ali Alabbar, Chairman of Emaar Properties, in a statement.
''Our strategy for the future is to further consolidate Emaar's position as one of the largest developers of iconic projects and increase our recurring as well as international revenues and profits.''
If this strategy includes continuing to pay dividends, then delivering on mega projects will be essential. But it will also make it tough for other developers to measure up to the same standard.
''Size — or, more appropriately, scale — is key to making a project a mega project,'' says David Cockerton, a fund manager with SinoGulf, a Sharia-compliant asset management firm. ''However, [it] is perhaps not everything. Other things to consider include the need for multiple components within the project.''
He adds that it's not enough for a project to be classified by the ''overused term, iconic''. Instead a mega project should make a significant impact on, and change, its landscape. ''It should reinforce or place the location on the map — probably at a global level — and also act as a catalyst for economic growth,'' he says.
JLL, Middle East and North Africa, (Mena), states that quantifiable measures of what constitutes a mega project typically include any project across a large land area (in the vicinity of a million sq m), or in the case of more dense projects, across half a million sq m of gross floor area. Developments of this scale would be expected to have a direct and indirect impact on the economy and job creation.
Based on these criteria, there is no doubt that the development of Mohammad Bin Rashid Al Maktoum City — District One is likely to have a seismic effect. Pitched as a mega development, it is supposed to include business parks and towers, villa communities, schools, hospitals and malls along with waterfront developments by its man-made lagoons. The Meydan Sobha Group will start off by developing District One, which will cover 4.18 million sq m and offer luxury villas and parks.
Such mega projects will continue to symbolise the UAE's success. And they're made possible thanks to a combination of ample land and financial resources.
In case of certain projects, there is also a real need or demand for the product, says Cockerton. ''After all, mega projects across the region have tended to be some of the most successful. However, there probably are a number of equally powerful emotional drivers as well, including a desire to test boundaries, an appetite for global recognition and confidence in rapid growth.''
As in other emerging and frontier markets, growth is being powered across a spectrum of sectors, from tourism and retail to commercial and residential development, based on a rising population, greater visitor numbers and increased economic activity.
Take, for instance, Mall of the World, the massive retail development set to get going this year. Estimated at around Dh24.9 billion, Dubai Holding plans to create a 4.4-million-sq-m retail district to boost tourism. It will consist of a theme park and around 100 hotels, as well as what is being billed as the world's biggest mall.
Chris Francis, Associate Director of JLL Mena, explains, ''The growth of visitors to the city from the current 11 million to more than 20 million [by 2020] allows for numerous retail and hospitality projects to be absorbed into the market, as long as they are phased correctly in line with demand.''
The phasing approach is considered particularly important when it comes to both the financing and delivery of the projects, says Cockerton. ''Segmentation into bite-size chunks enables independent funding and the implementation of individual elements.''
But a phased roll-out is not the only difference required in the way the new wave of mega projects is being structured. ''Most developers of mega projects have adopted a more grounded and realistic approach, albeit to different levels,'' says Francis. This includes introducing developments that target end users instead of speculators, a trend that has garnered government support as well.
''One of the main pitfalls the last time was that many a developer targeted a greater proportion of speculators, whose only interest was to flip properties,'' explains Francis. ''This often resulted in people holding assets they never really wanted in the first place.''
Demand has also shifted towards developments with the right level of community facilities and infrastructure, such as access roads and utilities, and buyers and tenants are now wary of still-to be-completed components in any development.
''Besides community centres with essential retail options, ancillary education and health-care assets, in the right proportion, are key to building self-reliant, holistic communities,'' says Francis.
These demands are leading to increased scrutiny of the work of master developers and their need to screen sub-developers. The master developer should sell land only to sub-developers who have the intent and ability to develop them. Francis believes that developers can no longer build only luxury products and expect results.
''A need-based feasibility assessment is critical to analyse location characteristics, its competitiveness, affordability, and, most importantly, realistic financial projections to come up with the right development mix, targeting the right demographic,'' he says.
If mega projects with these qualities are well received by the market, then development opportunities will continue to emerge. And there are signs this is happening with new projects.
''Developments are now being viewed in a master planned context, rather than as individual assets,'' says Steve Harrison, Design Director for Structural Engineering at Atkins. ''If you want a development to be desirable for investors and buyers, you've got to give them access to the city in which they live.
''Also ensure that developments aren't competing against each other but complementing each other, so the balance of the make-up of buildings is appropriate for the community you're ultimately trying to create.''
It may be years before the city knows for sure that mega projects are back, but this time around, the proof will be in the buildings as well, not only the selling.
Get a glimpse on looking back to look forward in Dubai real estate
Source: Stuart Matthews, Special to Property Weekly