Putting Dubai's housing in order

Dubai: More than 5,000 new housing units will be added to Dubai's property market in the next few months by Wasl — the asset management arm of Dubai Real Estate Corporation (Drec), a top official said.

"We already manage about 20,000 housing units. With the new developments, the number of total residential units in our portfolio will rise to 25,000 units," Hesham Abdullah Al Qasim, chief executive officer of Drec, told Gulf News.

"Over the past year of economic downturn, Dubai's property market has moved from freehold to leasehold — a natural shift," he said.

This could help rents to ease further as supplies mount. Total housing supplies in Dubai this year could range from 27,000 to 30,000 according to the projections made by the Department of Finance in January, which was then predicted to have been less than enough to cool the demand.

However, due to the global economic downturn that impacted the UAE economy, the demand forecast has been revised downward.

Some analysts now predict the current deliveries could result in an oversupply that could bring both prices and rents still lower.

Al Qasim feels that the price readjustment has been good for the market.

"These new supplies will help the market stabilise further, especially when the demand picks up later," he said.

"House rents and freehold prices were skyrocketing at such a rate that made them nearly uneconomical.

"There has been a 5 to 10 per cent drop in rents in central Dubai. However, in suburban areas, the drop has been in the range of 20 to 35 per cent," he said.

"We have a balanced portfolio of housing units that are 95 per cent occupied — giving us a very good spread."

The Dubai government established Drec in June 2007, combining the assets of the Development Board and Dubai Real Estate Department, through Law No 14 that says that the corporation shall be a public commercial institution, affiliated with the Dubai Executive Council.

Drec's activities involve owning and managing its land bank, which includes a sizable amount of properties registered under the name of the Dubai Government, as well as others. Its mandate extends to building, investing in and utilisation of commercial and industrial lands and properties. The corporation holds a large chunk of Dubai's land bank. However, it is not planning to enter the freehold property market.

"As the leasehold market gains momentum, we are fortunate to have a large rental asset base under our management that will help balance market demand and supply," Al Qasim said.

Core business

"Right now, we are focusing on the core business — developing properties and restructuring businesses and enhancing shareholder value by efficiently managing the assets under management."

Dubai's late ruler Shaikh Rashid Bin Saeed Al Maktoum had, in the 1970s, invested heavily in establishing settlements in downtown Deira, Karama, Satwa, Qusais, popularly known as "Shaikh Colonies" that had helped to provide shelter to thousands of families belonging to government staff.

These housing units were managed by the Ruler's Court, Real Estate Department and Development Board. Rents in these colonies remained historically low compared to the market, which helped the growing number of expatriate families live a decent life with low wages.

Dubai's strong economic growth and fast-growing population had, till late last year, put tremendous pressure on its infrastructure and pushed housing prices and rents in recent years.

House rents in Dubai skyrocketed between 2005-2008 on rising demand, creating a nightmarish situation that has forced thousands of Dubai residents to move to Sharjah where rents were lower — putting pressure on infrastructure.

Rising rent and rent-related inflation prompted the government to impose a rent cap to help the middle income group, amid calls for solid investment in low-cost or affordable housing that will help Dubai to tame housing inflation.

Despite the recent hike in rents, Wasl has maintained some of the lowest rents in Dubai. Rent for a two-bedroom flat has remained as low as Dh16,000 in some parts of Dubai even now.

In order to help the market and ease pressure on rents, Drec has undertaken a massive housing scheme to provide affordable homes for the growing population. The new 5,000 supplies are part of the pack.

With Drec, the Dubai government has effectively corporatised its rental and leasehold assets under a single entity. However, it looks like they are not ‘commercialising' the rental market.

This will help the government to effectively balance the rental market by revising rents periodically — upwards or downwards depending on the demand and supply situation — and protect residents from rent-related inflationary pressures as the market became too commercialised.

The entity could soon outshine some of the major developers in Dubai and become the leading player, as it will gradually reshape some of the localities and neighbourhoods including Rashidiya, Al Qusais, and even Al Quoz Industrial Area and Jebel Ali Village.

Wasl is developing its businesses in a number of verticals, such as Property, Hospitality, Leisure and Industries.

"We have 5,000 industrial units spread across 27 industrial zones, such as Al Quoz, Jebel Ali, Rashidiya, etc. On the hospitality side, we have eight hotels under management," Al Qasim said.

Major hotel properties, such as the Hyatt Regency, Grand Hyatt, Westin and Le Meridien chains have been brought under its portfolio from other government-owned entities in a major restructuring plan that will gradually reshape Dubai's real estate landscape.

Al Qasim said it will gradually roll out hospitality commercial and retail project development arms.

Dubai's land bank is currently being shared by six major corporations including Dubai World entities Nakheel and Limitless, Dubai Holding entities Dubai Properties Group, as well as Emaar Properties, Dubai Investments and Union Properties apart from the direct government departments, while the majority of land used to be managed by departments that have now been brought under the jurisdiction of Drec.

Among these, Dubai World, Dubai Properties and Emaar Properties offer freehold lands and properties while Dubai Investments and Union Properties own lands that are offered to investors on leasehold (90 to 99 years). Drec is mandated to develop and manage rental units.

Al Qasim said there are signs of economic recovery.

"The UAE has come a long way in restructuring the economy since the beginning of the crisis a year ago. With the government's capital injection, people are feeling the benefits of the crisis," he said.

‘The macro-economic and market fundamentals are good, confidence has come back to the market. The banks are well capitalised and they have not sought additional funding," he said.