Second helping of the property pie

Mehboob Hussain wanted to sell his modified two-bedroom town house in the Springs for Dh3 million by June this year, at least that was what he shared with his friends at a barbecue on a cool November evening last year. He is now getting his wish, a month ahead of his estimates, but the target sale price has moved up a notch — Dh3.5 million and perhaps more.

He is not being greedy, he says. It just doesn’t make commercial sense to exit at this stage of the property cycle when everything is heading in one direction — up.

“Prices are going up almost on a daily basis, so you don’t even know what should be your threshold to unlock value and sell,” he argues.

Prices of properties more than halved in most areas of Dubai as the global economic crisis jolted the country’s financial system in 2008. Businesses fought to stay afloat, large corporations went into financial restructuring, developers struggled to deliver projects, and homeowners found it difficult to pay their mortgages. However, for the past year or so, the property market has shown signs of recovery. Dubai has announced several mega projects this year and some Dubai developers including Emaar and Nakheel have also sold new off-plan residential projects, indicating a rise in investor confidence.

However, for Hussain, a Dubai-based IT professional in his 40s, selling the house at Dh3 million means that he will have to rent until the property market comes full circle and allows him to reinvest at lower price levels. There are however no guarantees, Hussain says, that he would be able to buy a similar house for Dh1.5 million in the next five years.

“I would have done it if I was moving elsewhere and had taken cash with me. It might have been a good idea if I had plans of leading a retired life, which I could with this money, back in Pakistan,” Hussain says.

For the house, which he bought for less than Dh700,000 as the original buyer, the top offer Hussain got just before the bust at the back end of 2008 was close to Dh3.84 million. It is more than four times the reward on his original investment if he chooses to sell it at Dh3.5 million.

But, he believes the boom in the real estate market this time around is happening at just the right speed and for all the right reasons. Hussain intends to ride this wave. He believes Dubai is very different than it was in 2008, in a good way of course.

With improved infrastructure, a world-class metro system and Dubai World Central (DWC) set to open a passenger terminal in October, economic growth is on track and trade and business activity are being revived, while the government has launched new mega projects such as Mohammad Bin Rashid City. All these factors bode well for a sustained property boom.

The first quarter of this year has seen Dubai’s real estate sector post significant growth. “In addition to new project launches by master developers such as Emaar Properties, recording sell-out response, there is a steady and sustained growth in demand for residences across all key communities in the city,” says Niraj Masand, Head of Operations at the realtor Hamptons Mena. He adds: “With demand for homes in established communities taking the lead towards the second-half of 2013, the upbeat mood now extends across other integrated neighbourhoods too. This is a healthy sign of the property market gaining traction across the board.”

The realtor recorded several new registrations — both for purchase and rentals — reflecting the overall market trend of rising property prices and rents. The secondary villa market is also gaining further strength, it says, with significant demand for homes in Arabian Ranches and Emirates Hills. From the current market demand trends, Hamptons Mena estimates that residences in Downtown Dubai, Dubai Marina, Jumeirah Beach Residence, Jumeirah Lake Towers, Emirates Living and Arabian Ranches, among others, will record the most significant growth trends in the residential property sector. Masand explains: “The driving force of demand in these communities is that they are part of a vibrant neighbourhood with a wide range of amenities.”

Adeel Khan, a DIFC-based British financial consultant in his 40s, agrees. He classifies property investors into two categories — new and old money. Khan believes property prices are not being driven by old money — end users like himself and Hussain. The spike should rather be attributed to capital inflow from distressed European and some of the North African and Middle Eastern economies.

The motivation for investors from these regions is not from the economic benefits of DWC opening or Dubai winning the bid. “They are looking to park the capital and there is no better haven than Dubai and no better avenue of investment than properties at the moment,” Khan explains.

Within the old money, Khan believes there are two subclasses of investors — those who bought in 2004-05 or earlier and those who bought at the peak of the boom. Khan belongs to the latter category and it would be sometime before he would be able to lock in the price for his Dh4.8-million villa bought in 2008. The value of his dream house had plunged as low as Dh2.2 million during the bust and he couldn’t believe when he recently got an offer of Dh3.6 million for his house in The Villa in Dubailand.

The impact of the ongoing economic recovery and the real effects of winning the Expo bid would be felt when the wave of new long-term residents hit Dubai. That, Khan says, is not going to happen before 2015.

That’s when the old money will get good returns on investment, but for the moment investors such as Khan remain concerned about the negative equity they have in their homes.