Damac boss goes back to basics in Dubai real estate

Ziad El Chaar knows Dubai's population will grow in the lead-up to Expo 2020, and the property market will need to cater to that growth.

Ziad El Chaar, the managing director of Damac Properties, believes there should be a bigger proportion of mortgages as an element of housing finance. Jaime Puebla / The National

By the year 2020, when Dubai will stage the Expo international trade fair, the population is expected to rise by about 50 per cent to around 3.5 million people. Where will they all live?

That was the basic question that got Ziad El Chaar thinking recently. As the managing director of Damac Properties, one of the region’s biggest developers, he has a vital interest in the answer.

“Why is there a property market at all in Dubai? The industry wants to make money of course, and it’s very good at doing that. But the main reason is that the population of Dubai is going to increase dramatically in the next few years and these people have to live somewhere,” he says.

Damac, one of the notable survivors of Dubai's property crash in 2009-10, has made a name for itself via luxury developments around the region, often promoted with eye-catching gimmicks like luxury cars or even jet skis as giveaway incentives.

But this is a different side to the company: serious, socially responsible and spurred to join the debate about the current state of the property market. Two weighty organisations, the Central Bank and the IMF, recently warned of the dangers of another property “bubble” in the UAE.

Conscious of the damage it did when it finally burst last time, Mr El Chaar and Damac are going back to basics.

“We believe there should be a bigger proportion of mortgages as an element of housing finance. This would benefit resident user-buyers and make people more rooted in Dubai for the long term.

The legislation is there setting the mortgage limits at sensible levels, but the banks are still taking a very conservative approach. The banks have many people trying to sell personal loans, car loans and credit cards, but not as many selling mortgages. That should be turned round,” he says.

From a developer like Damac, with its reputation for upmarket grande luxe developments attached to big names like Trump or Fendi, that is quite a change in thinking. But the recent warnings about the possibility of “overheating” have obviously hit home at Damac.

“To the Central Bank we would like to say that more engagement is needed with the property industry in the UAE, with all the big developers, not just Damac. We need a more detailed analysis of statistical trends. We are ready to share all information and cooperate on how to better advance the real estate market here,” says Mr El Chaar.

He believes that the official statistics do not tell the whole, granular story of the UAE property market, for several reasons.

"In 2011 rents started to rise again after the downturn of the crisis, but this was before the value of properties started rising. The Central Bank talked about falling yields on rental property, and they have fallen, to between 5 and 6 per cent, primarily due to the capping in place from the Rera rental calculations now being strictly enforced. But it is all relative. London and India are only around 3 per cent," he says.

In other ways too, the figures are misleading. "The Central Bank says there has been a 27 per cent increase in prices in 2013, but is this for off-plan or for sales-ready properties?

“Some of the estimates say we are back at 2008 prices, but in some parts of Dubai, like Downtown for example, we are still 50 per cent off 2008 prices. The statistics are more complicated than they first seem,” he adds.

He believes that the two actions taken by the UAE authorities to tackle the supposed “overheating” in the property market have had only a limited impact. “The mortgage caps are not having much effect, because people are not taking or being offered mortgages by the banks. Increasing stamp duty didn’t make much difference either. It created a grey market in trading off plan,” he says.

Nor does he put much store, from a property expert’s perspective, in the figures that show a slowdown in the number of transactions and prices since the start of the current year. “There was a rush last September to get title deeds registered, and a resulting spike in the number of transactions. But these were not real transactions, only registrations ahead of the stamp duty increase provisions,” he says.

“Now when the 2014 figures come out there will be a decline and the authorities will say the measures we took – stamp duty and mortgage caps – are having an effect. But if off-plan transactions were reflected in the official figures it would show a big increase.”

If he quibbles with the official figures, he has strong words for the bankers and financiers who, he believes, have failed to fund the property business properly.

“Mortgages still account for less than 1 per cent of our sales. This is pretty much the same for all developers,” he says. Most of Damac’s customers are non-UAE resident. “There is one big factor at work here: Dubai is a big second home market, not only a market aimed at people who live and work here. At the end of 2013, more than 70 per cent of Damac properties were going to non-residents. So why not have a non-resident mortgage market in Dubai,” he asks.

Follow us on Twitter @Ind_Insights