Property prices are soaring, the economy booming ahead of Expo 2020, the oil price steady and banks among the best-capitalised in the world. So what can go wrong?
Alan Robertson, the softly spoken Scot who runs the Middle East business of the global property consultant JLL (recently rebranded from the venerable Jones Lang LaSalle), smiles before replying: “We think they’re smarter the second time around.”
By “they”, he means the developers that nearly collapsed in 2009, the authorities that oversaw a property regime that proved vulnerable to external financial forces and the banks that were overexposed to the sector when the tide turned five years ago.
Nonetheless, with the consultancy business as hard hit as anybody during the crisis, Mr Roberston, too, finds reason to be more cautious this time around. "There are some danger signs of a possible 'bubble' developing, especially in residential. We saw prices rise 33 per cent over the last year in Dubai and 25 per cent in Abu Dhabi, and obviously if that is maintained over the next few years it would not be sustainable. But we think some lessons have been learnt, and the rate of increase will slow this year," he says.
There are several reasons for his optimism that the UAE can avoid a repeat of the 2009 crash. He says that developers have learnt to judge their market more efficiently, with smaller developments being planned and units released in smaller quantities than in some of the mega-projects of before. “It is no longer a case of, ‘if you build it, they will come’,” he adds.
He points to government actions, too. The recent doubling of the transfer fee, seen as an “anti-flipping” measure, tougher mortgage requirements and a greater caution on the part of banks to lend, especially for speculative projects.
And, he believes, the Dubai residential sector is entering this stage of the cycle with a better balance between buyers and sellers: “There is still a lot of supply coming through. Many projects that were un-completed or un-let because of the crisis are coming back on the market now,” he says.
He says that prices are nearly back at 2008 levels, while rental rates still have a little way to go before making up all the lost ground – but they are getting there. With hindsight, the trough of the crisis came at the end of 2011, when the first sign of “green shoots” started showing through.
“Dubai led it – first the hospitality sector, fuelled by tourism, then residential, and now retail.”
In commercial property, there are still issues. “A lot of commercial property planned and built during the boom was the wrong type, the wrong product, location and specification,” he says, singling out the prevalence of “strata ownership” as a major negative. “International corporations, the main occupiers of commercial space, don’t want strata buildings. Add that to infrastructure difficulties in some developments, with roads and utilities incomplete, and it will still take a time for it to work through,” he says.
But even in areas of Dubai that faced challenges of this sort, such as Business Bay, are beginning to come good. "We think Business Bay is a good place to buy now. It's virtually an extension of Downtown and the new canal means that brighter times are ahead," Mr Robertson says.
In Abu Dhabi, though at a different stage of the property cycle, he says the merger between the two biggest developers, Aldar and Sorouh, will help to improve the supply pipeline. He has advised some clients, mainly law firms, that have decided to move into the Abu Dhabi Global Market – the capital’s new financial centre on Al Maryah Island – but has yet to detect a rush to the new financial hub.
“I don’t see many footloose financial occupiers heading off there from the Dubai International Financial Centre,” he says, calling the DIFC the “Canary Wharf” of the UAE.
That overall sector optimism has encouraged some of the bigger property corporates in the UAE to look towards equity capital markets. Damac got itself a US$3 billion-plus market capitalisation through the listing of global depository receipts in London last year. Emirates Reit just pulled off a successful share issue on the Nasdaq Dubai stock market. And Emaar, the biggest regional developer and virtually a bellwether for the economic fortunes of the emirate, is planning an initial public offering (IPO) in London and Dubai.
“That’s a good thing. It’s another source of finance and it means they will adopt public market governance models. Real estate investment trusts would be a natural extension and show the maturity of the market,” he says.
Mr Roberston’s responsibilities cover the whole of the Middle East and North Africa, but he believes that the UAE is “undoubtedly” the most mature market in the region.
“It is the most internationalised, and has set benchmarks and models that other countries are looking to replicate, like the regulatory regime in property here. But some, like Qatar and Saudi Arabia, would have to change some cultural and ownership issues before they could challenge the UAE,” he says.
As for Expo 2020, he says the benefits are hard to quantify, but it is a “great opportunity to build a long-term plan around a relative short term project. The whole area around the Expo site could become the ‘aerotropolis’ of the region.”
fkane@thenational.ae
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