Approach the United Arab Emirates from any angle you choose, and you will be confronted with real estate. By air, sea, or travel on the ground in the UAE, real estate seeks to overwhelm you with news of a hundred projects and with a thousand pictures allegedly worth a million words. Blazing from unipoles, banners, and the fences of construction sites in the two main cities, Abu Dhabi and Dubai, are messages from companies that “are building” and from developers out to provide us with the homes of our dreams — as if such mega-alerts were necessary against the backdrop of the now 150-floor Burj Dubai project and countless ongoing developments in both emirates.
But the visitor gets primed on property already before. While flying into Abu Dhabi on Etihad — after Emirates, Etihad is the UAE’s second flag carrier — the airline’s in-flight magazine’s over 60 full-page ads are made up to 20% by real estate advertisements. And if one were to drop in from farther afield, say Mars, then the proverbial monochrome little men in their gravity-repelling tableware would be compelled to consider real estate in the Dubai locality with its artful island conglomerations of Earth and the three Palms, the world’s top man-made properties that are discernible in plain view from outer space.
Taken up close and visual, Dubai’s ongoing second wave of property mass development momentarily stuns any criticism of the emirate’s hothouse economy. With Burj Dubai standing at 555 meters in mid-September (and still a year and quite probably well over 150 meters from completion), it is already delivering on its promise of scraping the skies more intimately than any other building in human history. Below this spire of aspiration, clusters and chains of monumental building projects occupy a stretch of land that three years ago was a mere expanse of sandy nowhere. Now it is a new midtown Manhattan nearing completion — only on fast track and bigger than any dreams on 34th Street or the appetites of tower builders up on Fifth Avenue.
Second-wave developments
The second-wave developments in what is called New Dubai come on the heels of the city’s earlier expansion along the stretch of Sheikh Zayed Road near the Dubai World Trade Center exhibition complex and the Dubai International Financial Center (DIFC). This older — by two to five years — area, which would count as a massive addition to any conurbation in a G7 country, today constitutes only one of the urban centers that give Dubai its real estate flair. Estimates vary, but Dubai has around $300 billion of ongoing real estate projects, not including infrastructure and industrial projects.
Next to Dubai is old friend and rival Abu Dhabi. When Dubai leveraged its trade and economic dynamism for the creation of its first high wave of property development between 2003 and 2005, oil-rich Abu Dhabi kept to its more conservative ways. However, between 2004 and 2005 it established a platform for its own real estate boom by opening the property market and creating its state-aligned development companies, ALDAR and Sorouh.
Analysts of Abu Dhabi’s real estate market expect the city to change hugely in the next two years, driven by a long-term strategic real estate expansion plan to develop over 200 million square meters of land at an estimated cost of $1 trillion — the largest real estate development plan in the world. Abu Dhabi currently has around $270 billion invested in ongoing real estate projects and last month announced the establishment of a new Urban Planning Council that will be the final authority on all real estate planning and licensing.
The five less well-known emirates of the UAE that make up the rest of the federation have less territory than Abu Dhabi, which makes up four-fifths of the UAE in terms of surface, and less economic pull than Dubai, where the majority of new entrepreneurs and job seekers hunt their fortune. Nonetheless, the “northern emirates” have announced their ambitions to be part of the property miracle. The smallest, Ajman, and the northernmost, Ras al-Khaimah, are now experiencing massive real estate growth and attract foreign investments with the possibility of 100% ownership rights and guaranteed residency visas for buyers. According to a report by Emirates Industrial Bank, Ajman now boasts around 200 leasehold residential towers “either under construction or completed since the city’s freehold property sector started in 2004.”
The smell of new also permeates Sharjah, whose proximity to Dubai made it a place of — somewhat — more affordable living for many in the growing workforce. Its neighbor to the north, Umm Al-Quwain, is laden with both large residential and industrial projects, including a “Peace City” (Al-Salam City) projected to become home to 300,000. Fujairah, the emirate located on the Indian Ocean side of the UAE, has notable prospects for development in two divergent realms, as the site of a new UAE oil terminal and in hosting nature tourism.
foreign players are happily
investing billions of dollars in the uae while simultaneously, uae
companies are branching out into foreign markets
Globalizing Real Estate
The most recent observable fact is that foreign players are happily investing billions of dollars in the UAE while simultaneously, UAE companies are branching out into foreign markets where they are pumping an estimated $30 billion into real estate investments. Foreigners are drawn to the UAE in general and to Dubai in particular by potential investment returns of 25%, hard to come by in mature economies such as the US or the EU.
UAE firms with surplus liquidity from windfall oil revenues find foreign markets enticing because of the opportunity to become global players in their respective sectors. Other attractions for them in foreign markets include low prices on land, an easier operating environment and a high return on investment (ROI). The global real estate market is forecast to reach a value of about $450 billion by 2008. A large number of property developers in the UAE like Emaar, Nakheel and DAMAC have already entered the European and US markets for further expansion and an enhanced reputation that includes international expertise and experience.
Year-to-date, Emaar has embarked on projects valued at $110 billion and the region’s real estate giant is expected to earn around 60% of its revenues from international operations. In early September, Emaar chairman Mohammed Alabbar even flew his private plane to North Korea, sparking rumors that the trip may be related to future investment in the communist country. Other UAE companies investing abroad include Al Manal Development which is working on its second project in Geneva.
Dubai-based Deyaar, whose shares have doubled in value in less then a week after being listed on the DFM in early September, said it was developing real estate projects worth $544.5 million in Kazakhstan, Turkey and Lebanon. Deyaar’s chief executive, Zach Shahin, announced a $5 billion development, the township project in India with Ansal Properties & Infrastructure.
Naturally, the UAE government is playing an encouraging role in promoting the sector’s expansion, which has significantly contributed to the country’s non-oil GDP and the attraction of FDI. According to figures issued by the Ministry of Economy, the real estate sector’s added value to UAE’s GDP, in nominal terms, grew at an average of 16.2% between 2001 and 2005. Growth was equally impressive in real terms, registering a rate of 12.3% per annum. In addition, the government subsidized and granted free land to a number of developers, a move that permitted real estate firms to reach critical mass in record time.
Going Strong
The crisis of the US sub-prime mortgage defaults in August hit stock markets across Asia and Europe hard but regional stock markets, and the UAE in particular, rode out the credit squeeze. The real estate sector, specifically, remained strong as the shortage in residential and commercial units, combined with the annual 9% population rise, is expected to generate favorable returns for investors in the next three years.
“Structural factors underpinning strong demand for UAE real estate would not be affected by the turbulence in financial markets, which had resulted in a re-pricing of credit risk in both advanced and emerging markets,” Abu Dhabi Commercial Bank’s consultant chief economist Richard Gibbs wrote in a report on the sector. “While there was evidence of a severe tightening of credit conditions in some markets, it should be remembered that the Gulf Cooperation Council economies were net suppliers of savings and credit to the global financial system,” he added.
Although Dubai is the ninth most expensive city in the world in terms of office or apartment rentals, according to a report released in August by CB Richard Ellis, demand for real estate continues to rise exponentially and the tourism sector continues to be the cornerstone of Dubai’s development. Estimates by the Dubai department of tourism and commerce marketing show a necessity for around 80,000 additional hotel rooms to be built by 2010 to accommodate the swelling number of tourists. In anticipation, more than 100 hotels are expected to be constructed by 2010. The projects include the $54 billion Bawadi, which will feature 31 hotels, the Ottoman Place Hotel and Resort, the $218 million Al-Magreb Resort and Spa and the $504 million America Hotel and Resort. And the list goes on.
The market for office space is soaring beyond control despite all the mega projects such as the 5.9 million square meter Business Bay — a commercial and financial hub — a new city within a city in Dubai that features residential and office towers including pathways and water canals. Other projects include the Culture Village, the Jumeirah Beach Residence, the Jumeirah Lake Towers and many more. Investment Bank Prime said in a research note that the commercial market continues to evolve, “The amount of commercial space is forecast to triple to an announced 7 million square meter by 2010,” Prime added. “Most of the commercial space additions are expected to hit the market in 2008 and 2009, with major deliveries in Jumeirah Lake Towers, Business Bay and DIFC.”
Sine qua non
Domestic and foreign demand for property in the UAE has surged alongside rapid economic growth and analysts do not foresee an end to this trend for the next five years. They point out that the market is buoyant and this can be credited to surplus in regional liquidity, exceptional rise in disposable incomes, monetary policy liberalization and better credit policies. Dubai-based Shuaa Capital expects UAE listed companies to record a positive growth rate in 2007 and this bodes well for the sector. Although the Dubai and Abu Dhabi Real Estate indexes on the Dubai Financial Market and the Abu Dhabi Market respectively, have performed weaker then expected the trend as of mid-September is looking upward. “The highest growth will come from the real estate, construction and construction materials sector, the non-banking financial and the services sectors,” Shuaa said in a report published in September.
Forecasts, Gross Leasable Area,
UAE Shopping Malls, 1,000 sq. meters
Across the UAE, real estate is judged to still have a solid demand outlook, based on the strong projections of economic growth and expansionary job market for the two biggest emirates. Supply overhangs of housing units are most likely to occur in the medium term in Dubai, where analysts have forecasted a bulge in new unit deliveries by 2009. In Abu Dhabi, where real estate experts say the flood of new apartments will arrive around two years from now, demand is set to swell in the intermediate time.
Given the cyclical aspects of the real estate business with fluctuations from relative overvaluation to relative undervaluation, prospective real estate developers and buyers in the UAE may want to take a step back from the assumption that real estate valuations have no way but up. As far as anticipating demand for new apartments, factors such as affordability and relative pricing can change a picture that is built entirely on forecasted job market growth.
The high public profile of real estate developers in the UAE appears justified in a market where it is three times easier to find a promising new job than to secure adequate housing. In Dubai, the property sector increased significantly more than most other sectors in its macroeconomic role between 2000 and 2005; only trade and construction recorded stronger shifts in their favor in their contributions to GDP. Nonetheless, the visual presence of developers and sales hype for new homes and offices is clearly reaching beyond the role of the property sector in the UAE economy and also beyond the weight of sector companies in the emirates’ economic fabric.
This marketing overstatement of real estate players is illustrated by the fact that sector companies make up only 10% of the 150 largest publicly-traded companies in the GCC, much less than their presence in advertising. The six UAE-based developers in the list of 150 (compiled by Shuaa Capital) outperformed their peers in Saudi Arabia in terms of market cap gains in the 12 months to last July. In order to cement their current towering contributions to the economy in the longer term through national and international activities, however, the UAE real estate developers will have to make true on their professed strategic aims, converting them from lofty statements into unshakable realities.
