Dubai property market top-value magnet for security-seeking Mena investors

Investors from the Middle East and North Africa (Mena) region are keen on buying real estate in Dubai due to its international appeal, transparency and legal structure, according to a new survey.

Jones Lang LaSalle’s (JLL), in its seventh Mena Investor Sentiment survey, puts Dubai as the top investment destination across the Mena region for real estate, with investors’ expecting Dubai to remain as the strongest performing real estate market in the region over the next 12 months.

“Most investors are willing to buy real estate for lower yields in Dubai than other markets, indicating once again that Dubai is considered the most attractive location in the Middle East,” the global real estate consultancy said.

“Yield expectations in the other markets were more evenly spread between eight and 10 per cent.

“The transparency, legal structure and international appeal of Dubai are the likely reasons for this trend.”

Over the years since property freehold was announced, Dubai has introduced over 13 property laws and will soon be launching the a real estate investor protection law — the first of its kind the region — which aims at offering 100 per cent refund to investors in case of defaults by a developer.

Besides, in the first nine months of the year, according to Dubai Land Department, the total value of property transactions in Dubai has crossed Dh83 billion.

On Tuesday, Mercer 2012 Quality of Living Survey said Dubai had retained its top spot as the city with the region’s best quality of living, followed by Abu Dhabi. 

In the JLL survey Dubai was voted as the favourite location for hospitality sector as well, with expected yields between eight and 11 per cent.   

Yield compression from last year was expected as deals were done at sharper pricing than their survey indicated, the survey said, adding one of the prime reasons for this was the interest rate cycle and drying up of opportunities globally, resulting in investors seeking assets in the region. 

Dubai topped the list of investment destination in Mena, JLL said, as sentiment towards the emirate improved significantly over the past 12 months. 

Pointing to structural and cyclical reasons, JLL said Dubai’s economy has been on a recovery path for the past 12–18 months and real Gross Domestic Product (GDP) growth is forecast at around 4.5 per cent for 2012. Besides, the emirate has benefited from its ‘safe haven’ status, attracting investment capital from more volatile markets in the region. 

Last week, Citi, one of the largest Wall Street banks, upgraded the UAE’s real gross domestic product (GDP) growth to 5.1 per cent for 2012 compared to its previous estimate of 1.9 per cent, citing resurgence in in the country’s construction and real estate sectors. 

Although the real estate market has lagged the overall economy, JLL stated there were increasing signs of the sector recovering, at least for selected prime locations. 

“Investment activity and prices are rising, particularly in residential and hospitality sectors of the market.

“The well-developed infrastructure, improved transparency, high quality of life, have all contributed in putting the Dubai real estate market back on track,” the survey said.

Not limited to the above factors, Dubai also scored over other markets in the Mena region with it offering higher stock of “completed, investment grade” properties.

“While there remains a general shortage of such opportunities to satisfy the level of investor demand, the emirate offers a greater range of completed and income producing products than other markets in the region, most of which remain at earlier stages of their development cycle,” the survey said 

Saudi, Abu Dhabi follow Dubai 

Saudi Arabia bagged the second position with Abu Dhabi coming in third on the investment destination chart. 

“All Saudi submarkets (Riyadh, Jeddah, Eastern Province, Makkah and Madinah) have scored well on our survey as the real estate market in the kingdom benefits from a large local population, high energy prices and a stable political structure which has insulated the market from social and political unrest,” JLL said. 

The survey stated that Abu Dhabi market was at a “less” attractive stage of its cycle for investors than Dubai, with prices and rents continuing their downward trend in most sectors.  Lack of investment grade properties and limited number of locations where GCC and foreign investors are allowed to buy limited its attractiveness.

Projecting recovery for Egypt’s realty market, the real estate consultancy said that though Cairo market had lost some ground after the 2011 revolution, return to a more stable political environment under a business-friendly government will increase investors’ confidence in the market again.   

At the sector level, the residential asset class emerged as the asset of choice amongst investors from all markets due to dominance of private investors and family groups, who typically prefer the residential segment over commercial sectors of the market. 

The hospitality sector also scored well, especially in Dubai, Riyadh and the holy cities of Makkah and Madinah. Interest typically stems from specialist investors and niche players who are seeking specific opportunities, the survey found.   

Dubai remains most favourable  

Investors also feel Dubai will be the strongest performing real estate market in Mena over the next twelve months. 

“This favourable sentiment towards Dubai is a prime reason why investors have expressed the strongest desire to purchase properties in this market,” JLL said.

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