Property Buzz: Key trends in the Dubai real estate market

It was that dreaded time of the year again. I am talking of the annual "What-have-I-achieved-out-of-my-New-Year-resolutions" list exercise, a list that now seems obviously made in a moment of absolutely mindless optimism on last New Year's Eve.

Utterly dejected, I turned to one source of interesting and (usually) positive news the Dubai real estate sector. And voila, there were some fairly exciting developments in real estate in 2004. Here is my list of the key trends that showed up during the Year of the Monkey:

North by northwest

Primary market prices of residential properties persisted in their upward journey. The big three (Nakheel, Emaar and JBR) have all raised their prices compared to units sold in 2003 and earlier.

On a per square foot basis therefore, a unit on the same project is much more expensive now.

Certain projects launched in July 2004 were priced approximately 150 per cent higher than apartments sold in the same project in April 2003. This obviously allowed the developers to capture the premium inherent in the soaring resale market.

More affordable

However, in a neat twist, cheaper properties showed up for the first time. Apartments in the International City and Discovery Gardens projects appeared on the secondary market soon after the launch of the apartment buildings by the master developer in December 2003 and July 2004 respectively.

These studio and one-bedroom units are available in the resale market at prices ranging from Dh250,000 to Dh650,000. Apart from enhancing buyer choice, these projects meet an urgent need.

With a population that is forecast to increase rapidly, Dubai needs all the affordable housing it can get and the addition of approximately 49,000 units should help cool rental rates and prevent Dubai from being a prohibitively high cost city to live and work in. It would make a lot of sense if we saw more of such projects.

City heat

Back in 2001-2002, office space was in surplus and I recall one major developer shelving plans to launch a commercial tower.

Now the situation is the opposite. With a near-zero vacancy rate and the closest completion date of new towers being late 2005, office space is suddenly the best girl at the dance.

The resale premia of launched projects are pretty high and prospective office rental yields appear to be very attractive.

Speculators not wanted

The message that the big developers are sending out is very clear: traders need not apply. The reasons are compelling. Speculators corner the market leaving few units for the genuine buyer.

Also, they cause prices to move erratically and out of sync with fundamentals. To lock down on speculation, developers have come up with an array of weapons.

The armoury includes increasing the down payment, prohibiting resales before lapse of a fixed period (e.g. six months), insisting on accelerated payment of at least 50 per cent of the next installment before resales are allowed and limiting the number of properties that can be booked by one buyer.

Though the universal dictum of "For every law there is a loophole" applies to Dubai as well, these rules seem to be working.

New kids on the block

Two master projects namely Jumeirah Lake Towers (JLT) and Dubai Marina have witnessed a slew of new residential tower projects in 2004. There is almost a new project every fortnight and the landscape has become slightly confusing with almost similar sounding names that have Marina or Towers somewhere.

The result is that competition among these developers is intense and every project attempts to offer something new. Twenty-four hour security, concierge services, high-speed internet and fancy architecture have become passe.

The latest projects offer maintenance for the first 5 years by the developer, flexible installment schemes and fully furnished units.

There is also a range of prices on offer; from Dh560 per square foot to Dh1,020 per square foot. All this is great news for the apartment buyer who can now really shop around for the best buy.

Private parties

Up to early 2004, only Nakheel and Emaar had the privilege of seeing their projects on the resale market. Properties of these big boys still dominate the resale market but apartment units of some private developers have begun to show up in the classified sections and at a decent premium. This is good news since investors now have an exit route.

Enter the fund

Ever since the freehold property concept was marketed in 2002, the buyers have been mostly real estate agents, developers or individuals. For the first time, private real estate funds have landed in Dubai.

A Dubai-based private equity firm recently announced closure of a $100 million (Dh367 million) fund. The fund is expected to invest largely in leisure, tourism and residential related projects and a lesser part in office, retail and industrial developments and intends to make 5 to 10 investments, aiming for an internal rate of return of 15 per cent.

Most funds are long term professional players who live mainly off the property yields and this long-term investment horizon should help to stabilise and develop the market.

Sales take to the net

For the first time, a developer invited e-bookings for its property launch. Interested persons could register online and a bunch would be selected by random in a process verified by a Big 4 audit firm.

The select few were then invited for the launch to book the property. This sales strategy is quite innovative and ensures transparency and fairness in allocation of properties. It also reduces the unseemly rush that seems to be typical of any Dubai property launch.

Reality check

Property management is a complex and costly activity that covers a bucketful of services. Developers have now realised that the annual service charge is too low vis-a-vis the actual cost of property management.

A big developer recently hiked the charges on one waterfront apartment project to Dh15 per square foot from Dh8 per square foot (an increase of 88 per cent) and the process of rate revision may be repeated for some of its other properties.

In this respect it is interesting to note that most of the properties sold in 2003 and earlier were under priced in terms of service charges. Developers are finally marking up rates to more sensible levels. The impact on net rental yields is another story altogether.

Financiers loosen up

Quite a lot happened in this corner in 2004.

First, Tamweel and Amlak remedied a key grievance and announced that they would part finance the resale premium, making investors to throw their collective hats in the air.

The second development was the bigger flow of bank finance for buyers of privately developed properties. As an example, Mashreqbank currently finances projects such as Goldcrest and Platinum and recently Madina Towers was added to the list. All these apartment towers are on Nakheel's JLT project.

Third, 2004 was also the year in which corporate investors got access to mortgage finance. This move by Amlak will allow companies to purchase houses for their staff, as well as invest in commercial office space. Finance is a maximum of 70 per cent of the property price or Dh10 million for up to ten years.

Fourth, some banks that launched their mortgage products in 2003 went further and introduced resale transactions, refinancing, pre-appro