The Middle East is in the middle of a real estate frenzy as islands, golf courses, and branded skyscrapers emerge from the desert sands. Luxury real estate seems to be ever more in demand in a world where the number of super rich seeking new forms of living just keeps on growing.
While several economic, legislative and financial factors might have certainly played in real estate sector development, the main driving force behind its growth can be attributed to towering oil prices. Liquidity has fueled real estate expansion, the scenario being replicated in most countries around the region, and more particularly in oil producing ones.
Janet Warwick, regional director for the Gulf region at LuxuryRealestate.com, estimates the yearly growth in the UAE to vary between 10% and 30%. Richard Faint, Head of Business Development for the Jabbar Group and Operations Director of the Jabbar MENA (Middle East and North African) Real Estate Fund, underlined that, “the dramatic growth witnessed, for instance, in the UAE markets is certainly driven by oil riches, which have also had a spillover effect in other countries such as Morocco and Egypt where investors are lured by a stable political and economic situation.” Another factor contributing to the real estate sector’s healthy figures is the relative immunity of the region to the global credit crunch, less debt-driven than its western counterparts.
Building cities
Flush with cash, governments have been commissioning entire cities. The King Abdullah City comes with a $26 billion price tag, while Oman’s Blue City is valued at $15 billion. Dubai is currently boasting several projects, among them a $20 billion Dubailand and the World and Palm Islands developments. The Burj Dubai comes at the top of the most expensive square meter list and, at a half-mile high, is expected to be the world’s tallest building. It will include a hotel, luxury apartments and the largest mall in the world, the Dubai Mall.
Many luxury residential developments have become mixed projects, integrating into residential areas hotels that are managed by stellar industry names, such as the Jumeirah or Starwood chains. The fate of luxury residences seems to be ever more closely intertwined with chic hotels and resorts: the Saraya’s Aqaba project in Jordan includes six hotels, including two boutique hotels. While the Al Qala’a Hotel, Qasr Al Aqaba Hotel and Dar Al Masyaf Hotel are operated by Jumeirah, the Westin Aqaba Resort is to be operated by Starwood Hotels & Resorts, which is to also manage the Al-Manara Hotel.
Besides partnering up with hotel chains to make their properties more visible on the rich and famous’ world map, developers have provided their projects with special perks: marinas, helipads and golf courses.
The Malkai project in Oman is one of these. The country club, which is scheduled to open at the end of 2010, consists of a boutique hotel and club properties that will be sold on freehold basis, sprawling over 85,000 square meters of land. The project’s first nine-hole golf course will be designed by South African golfer Gary Player. In Dubai, the most significant development inclusive of a golf course is the Tiger Woods Dubai, a project by Tatweer’s Dubai Holding, which is designed by international golf champion Tiger Woods.
Brand names have certainly become a common attribute to luxury real estate projects and brand endorsement as a new marketing tool has brought added value to luxury real estate developments around the region. Fashion figures are increasingly called in to design hotels and residences. Boutique Middle East property developer Abyaar and designer Christian Lacroix recently announced their joint venture for building a residential tower project located in Dubai’s Jumeirah district. The tower facade and luxury interiors will be designed by Lacroix, an iconic figure in French haute couture who is known for his eclectic and often baroque style.
“If one takes a glance at the UAE markets, an average 1,000 square meter two bedroom apartment might sell in Dubai for about 250,000 euros ($375,000). The same apartment in the vicinity of Burj Dubai, which includes the Armani hotel, would cost as much as six or seven times this amount,” Faint pointed out. According to an AME article from early June, presales of luxury real estate at the Burj Dubai have overtaken those at the Trump International Hotel & Tower on the Dubai Palm Jumeirah, with prices fetching a record $3,540 per square foot.
Brand endorsement definitely creates value for development projects, said Faint who reckons that although relatively small in size, apartments located in the Trump Tower will certainly be sold for millions, because of the celebrity name attached to the development. The Trump International Hotel & Tower is currently being built on one of three palm-shaped islands off Dubai’s coast, where a square foot in early May topped $3,267. Prices in Burj Dubai and Trump Tower are widely considered to be the highest in the UAE.
As Faint explained, “The definition of luxury real estate certainly differs from one country to the other. What is perceived as luxurious in Morocco, is not necessarily considered as the same in the UAE, the United Kingdom or Japan.” The manager emphasized that while a villa in the Tinja real estate project developed by Emaar in Morocco might be considered as high end and sold for $750,000 to $900,000, the price for a luxury apartment in the UAE can go up to two to three millions of dollars.
Levant luxury
In Lebanon, the definition of luxury has taken a very different meaning. Karim Brahim from the Jamil Ibrahim real estate development company and Sami Andraos of Greenstones both stressed the importance of location, size of the apartment and finishing as well as the expertise of consultants brought in on the project. Beirut areas including the beachfront, Ashrafieh and Ras Beirut are much coveted by investors. Besides the location on one of Beirut’s oldest and most picturesque streets, Greenstones has chosen to incorporate its news residential project L’Armorial into a century-old building dating back to the French mandate that was carefully preserved.
Just like in other countries in the region, Lebanon’s real estate sector has attracted investors and speculators. “Real estate in Lebanon is perceived as more affordable than anywhere else in the region, which is luring investors in,” said Ibrahim. Although most luxury real estate buyers in Beirut are Lebanese, they are often comprised of expats living in the Gulf and thus benefiting from the wealth created in their countries of residency. “Beirut real estate prices are also quite ‘sticky’ due to the limited construction area still available, which means that prices never go down, even when the market stagnates” Ibrahim added.
In other areas around the Arab world funds are increasingly aware of the benefits to reap in such favorable markets. The Jabbar Fund Management announced at the end of May the launch of its $31.5 million MENA Real Estate Fund, which was developed in partnership with FSA-authorized operator Acorn Corporate Finance. The fund provides a tax efficient route for investors seeking exposure to one of the world’s most active real estate markets.
“We are currently running several funds in Dubai and Morocco and are keen to further capitalize on the MENA region’s dynamic real estate markets, which are currently outperforming the West’s as a result of high levels of liquidity, government support for tourism projects and underlying economic growth. This fund provides high net worth investors with access to real estate assets in these dynamic markets without the hassle of actual property ownership,” Faint said.
Diverse investors
Investment for individuals differs, however, from one region to the other. “Gulf companies such as Emaar and private investors are looking into countries like Morocco and Egypt, which are culturally close to them and offer the right investment environment,” Faint pointed out. However, in Morocco, besides Arab and Western investors a large number of property buyers consist of locals who built their fortunes with ‘black’ money, traded illegally. “In such markets like Egypt or Morocco, real estate investment prospects are calculated on long term basis, while in the UAE money can be made rapidly due to the market astounding progression,” highlighted Faint. The nationality of real estate investors in the UAE also differs as most buyers are Iranian, Iraqis or Russians who perceive the Emirates as a safe haven for their cash. “The growth of the luxury second home segment has been extraordinary in the last decade and many buyers of luxury property in the UAE are looking for just that, while also making a large capital gain on the long term,” Warwick said.
Investors eyeing the luxury real estate market are seeking to make big profits or buying a piece of a dream. Illustrating the latter trend, the value of some property in the Palm has risen from $1.7 million in 2001 to some $30 million today, according to Warwick. The project of the Asia island in the World in Dubai, which includes among the 100 properties “Sunset Beach villas,” and “Lagoon Homes” and “Water Homes”, is reflective of such trends. In Faint’s words, “People who acquire property [in luxury real estate] are buying more than a residence; they are acquiring a life style experience.”
