Property | UAE

An upward market does not mean a repeat of 2008

Developers and investors take on a more pragmatic approach

  • By Alan Robertson Special to Gulf News
  • Published: 13:42 March 28, 2013
  • Gulf News

Our office in the heart of Downtown Dubai is adjacent to Emaar’s HQ and sales office. This provides us with a strategic location for assessing one aspect of the recovery of the Dubai real estate market over the last six months — the return of off-plan launches for new residential projects.

Emaar recently launched a number of new projects and it appears that the queue for each one is progressively longer. What does this tell us about the current state of the residential market and the extent to which 2013 will see a return to the heady days of 2006 and 2007?

At first sight, it appears that many of the conditions that led to the unsustainable growth in real estate prices in 2006-07 have returned. These include strong demand from cash-rich overseas buyers, attractive credit terms (in the form of extended payment plans for off-plan projects) and discussion about instant profits for those lucky enough to secure units in select projects that can then be quickly sold on.

In our view, the Dubai market has, however, moved on and matured. This provides hope that the excesses of the last speculative boom can be replaced by a period of slower, but more sustained growth, in demand and prices. This would be in line with the experience of other overseas markets where the amplitude of subsequent market cycles reduces as markets mature.

There are three reasons why we believe that the exuberance of the previous cycle can be prevented, allowing the market to shift up a gear without becoming overheated.

Firstly, there remain limitations on the availability of finance. While the UAE Central Bank has delayed the implementation of the proposed caps on the loan-to-value ratio for mortgages until later in the year, there remain constraints on the level of funding available from local banks to finance or purchase real estate in Dubai.

Secondly, there are high levels of new supply entering some sectors of the market. While not all the 45,000 residential units scheduled for completion in 2013-14 will actually be delivered in this timeframe, there remain significant levels of new supply which will provide investors with a choice of completed units and dampen the pressure for price increases for off-plan units.

Thirdly, there are improvements to the legal and regulatory framework that provide more protection to investors. While the new ‘investor protection law’ has not yet been formally approved, there are tighter controls on the level of down payments that developers can claim from purchasers prior to commencing construction and some developers are inserting clauses into their sale and leasing agreements that require minimum holding periods or further periodic payments.

While we remain hopeful that these factors could help the market avoid the excesses of the last speculative boom, the extent to which this will be achieved clearly remains to be seen. It would be a real shame if the lessons from the previous period of unsustainable growth are not heeded.

Dubai being Dubai, the new projects being launched are as ambitious as ever. We are, however, seeing signs of a more mature and considered approach. The key to the success of individual projects and the future performance of the overall market will be the adoption of a realistic phasing strategy in line with market demand.

We have definitely seen a return in confidence to the Dubai residential market. The challenge to all those interested in the long-term sustainability of the market is to ensure that this confidence does not lead to undue exuberance.

If the market has learnt anything from the past decade, it is surely that an extended period of sustained growth is far more beneficial than a short period of unsustainable growth followed by an inevitable crash.

— The writer is the CEO of Jones Lang LaSalle, Middle East and North Africa.

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