A window on Dubai’s property market: return of the ‘crane capital’?
Nobody doubts the central role played by the property market in the UAE’s economic development. Property was the trigger for the crash of 2009 and then spent several years in the doldrums, but now the skylines of Dubai and Abu Dhabi are again dotted with cranes, erecting another glittering residential skyscraper, office block or hotel development.
Just recently, it was claimed that Dubai was close to recovering its place as the “crane capital” of the world, that is the city with most cranes per head of population. If that is so, it is a testimony to the economic recovery of the emirate, and the UAE, but it also poses the question: can the bubble inflate and burst again?
Nick Maclean is in a good position to tell, physically and metaphorically. His office in Emaar Square directly overlooks the most important bit of prime real estate in Dubai – the rapidly expanding Dubai International Financial Centre; and he is the managing director for the Middle East arm of the international property consultants CBRE. So are we on the cusp of another property downturn?
He chooses his words carefully in response: “We’re in a very interesting position. Last year, demand and prices soared, especially in residential, between 25 and 30 per cent ahead. This year, it’s been much less buoyant. The trajectory of the increase is down, and the number of transactions is down.
“I see it as a pause for thought, or even a stutter, in reaction to the price rises of last year. Lessons have been learnt from the crisis. I believe it’s going to be different this time,” he says.
He says that government actions – like the new mortgage regulations and the introduction of “stamp duty” on transactions – are acting as a brake on overheating in the property market, but also that owners and consumers have got more savvy in their approach to property purchase and rental.
“Consumers, by which I mean end-users, not investors, are moving out of areas they believe are becoming too expensive, and landlords are testing the marketplace by price. Some nationalities that have entered the market as owners since 2009, like Russian, Chinese and other Middle East investors, are much less price sensitive. They may hold stock away from the marketplace if they cannot get the price they want, and in some ways, this is good long term,” he believes.
Emirati owners, still the majority, are much more attuned to local and short-term factors in determining rents, and will adjust according to conditions on the ground, he says.
It’s a case of so far, so good in residential property, Mr Maclean says, but the authorities have more ammunition up their sleeves if they see signs the market is running away again. Measure against “flipping” – selling off-plan property quickly for a quick profit – has been limited in practice by company policy adopted by the likes of Nakheel and Emaar, but Mr Maclean believes the government could introduce legislation in Dubai to ban the practice.
He sees some important differences between Dubai and Abu Dhabi property. “Abu Dhabi is more local, serving people who live and work there; Dubai is more of an international base for people and companies serving the broader region, and therefore potentially more volatile,” he says.
CBRE’s main expertise is in commercial property, which faces different difficulties and on which Mr Maclean has some pretty trenchant views.
Overall, commercial has not experienced the dramatic recovery of residential. In the best quality and best locations, like the corridor that runs down Sheikh Zayed Road from DIFC, through Emaar Square to Tecom, occupancy levels are high, but, he says, there is still a lot of stock, and a lot of vacancy in other areas. As much as 40 per cent of Dubai’s commercial property is vacant, he estimates.
There is one main culprit for this: strata ownership, the practice whereby several investors jointly own parts of floors or whole floors of office developments. In the beginning of the property boom, it was an instrument for funding development, allowing master developers access to investment capital without going to the banks.
Now, says Mr Maclean, it is a big deadweight on commercial property development. “Strata owners are not acting in unison and communications are not easy. Their interests are different, and issues like maintenance become problematic. Corporates simply do not like it,” he says.
He advocates some quite draconian measures to rectify the situation, as have been imposed by governments as diverse as those of Hong Kong, Singapore and Australia. “They have introduced retrospective legislation forcing strata owners to act in unison, but there is a whole suite of measures the UAE authorities could impose. At one extreme, they could step in to buy out strata owners, get the property let and then pay them back from the rental stream.” He admits this could be “difficult” in Dubai’s free-market economy.
Mr Maclean believes something must be done, however, or the commercial market will continue to suffer, even in prime spots like DIFC where many of the new developments are strata-type.
The banks also have a big responsibility. “They should act as an audit on new buildings, and not advance funds for buildings that are going to be inefficient and not what the users want,” he says.
Beyond the specific problems of the commercial market, he sees a need for more liquidity in the local property market, and believes the forthcoming IPO of Emaar’s malls unit could be an opportunity to attract international institutions. “A liquid capital market is missing in UAE property, and that is a key opportunity,” he says.
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Published: May 27, 2014 04:00 AM