Dubai: As 2014 nears, the UAE’s real estate sector is finally in a position to draw closure on five tumultuous years. During this period, property values hit rock bottom in 2010; then came the first signs of stuttering recovery in 2011-12.

This year, in turn, is when the market hit the full recovery button and pick up momentum that should continue well into the mid-term, with the Expo 2020 as the goal.

But even as the legacy of late 2008 becomes distant history, there is one detail from that year that Dubai’s real estate market and its developers will take forward. This detail will make sure that developers cannot rush to market with project launches… unless they can show the necessary funding resources to make it happen.

That, in hindsight, will be the biggest legacy that 2008 can offer.

“It was on August 31, 2008 that Dubai passed strict regulations requiring developers to go through a set of requirements, including full ownership of the land they plan to develop,” said Ziad Al Chaar, managing director at Damac Properties. “At the time, the property market was still in its nascent phase and then the downturn happened, which threw out development activity on the sidelines.

Solid foundation

“Now, with the market upturn, this regulation will make sure it is built on solid foundations.”

Developers must also comply with the 20 per cent construction milestone before they can start selling units. Suffice to say, fancy brochures or a billboard on a site cannot be an excuse to start selling.

To get the necessary regulatory stamp of approval to sell, developers must comply with some of these requirements:

• Build up 20 per cent of the plot and then apply for the Dubai Land Department certification.

• Create escrow accounts for sales proceeds.

• Furnish guarantees from a bank that the developer has the required financial means to get on with the project.

But is project financing readily available? Or will developers have to be sufficiently deep-pocketed and use equity to get through to key construction milestones?

“Clearly, the regulations are more defined for launching projects; from ring fencing of investor money to project guarantees to strict rules and enforcement of freehold project launches,” said Sameer Lakhani, managing director of Global Capital Partners, a consultancy.

“Real Estate Regulatory Agency has been very proactive in enforcing stringent regulations for the sector. The pipeline of projects being announced have taken cognisance of these rules and the marked increase in announcements is a clear reflection that financial close has been achieved on those projects.

“The earlier reliance on off-plan sales and hot money has receded.”

Monetary policies

On the cost side, a lot will depend on monetary policies elsewhere. The US Federal Reserve has been talking about moving on from a zero interest rate regime and push for a degree of higher inflation. When that happens, it will have a bearing on cost of capital for all markets.

“Higher interest rates are definitely going to be the major talking point in the next two to three years; the steepening of the yield curve already reflects expectations of such hikes in 2014 and beyond,” said Lakhani.

“Smarter players have already begun adjusting to this reality through interest rate hedges and swap agreements. As the structural change in interest rates have been telegraphed well in advance, the probability of interest rate shocks occurring are minimal.”

As of now, local projects have access to a deep labour pool, despite Qatar’s 2022 World Cup requirements drawing on the same resources. “Labour capacity utilisation is way below the availability levels… still,” said Al Chaar.

The present is looking good for the UAE’s real estate and construction sector. And the immediate future offers similar optimism, if expectations and timelines are managed well.

“Dubai Expo 2020 will mean that established construction companies can look forward with renewed confidence, more than at any time over the past five years,” said Alan McCready, managing director at the regional office of the construction consultancy ISG M. E.