Dubai residential property market, previously envisaged to suffer from supply-demand mismatch, will benefit the most as the population is likely to more than double over the next decade and more jobs are being created, says Bank of America Merrill Lynch.
“Diversified economy, continued population growth and superior infrastructure investment will have positive impact on Dubai’s retail, hospitality and residential market,” the bank said in its new medium-term outlook report, “GCC 2020”.
Stating that the real estate sector provides a good exposure to growing consumer spending, mainly led by tourism and sizeable household consumption, the bank said: “We believe the key drivers of the Dubai real estate recovery will be: job creation, improved funding, and good execution of the ongoing diversification strategy away from hydrocarbon-related activities.”
The Dubai Executive Council has recently approved the new 10-year Dubai Urban Development Master Plan-2020. In it, the Dubai government reconsiders its real estate ambitions taking into account all aspects of residential, commercial and industrial infrastructure in the context of slower-than-anticipated population growth.
But prior to 2008, the land committed for mega projects had the capacity to accommodate nine million people by 2020. Officials, the bank said, have now revised this down to 2.9 million.
“Dubai’s active population should grow by 6.1 per cent on average over the next eight years, faster than residential supply, which is set to grow by 4.9 per cent over the next two years – this is critical in terms of delivery units,” the report pointed out.
Jones Lang LaSalle said this week that only 3,000 new residential units were added to the market in the second quarter, taking the total inventory to around 344,000 units. Based on the estimates from developers, it said a total of 24,000 additional units are currently scheduled to be delivered in the second half of the year.
Last year, UBS, the biggest Swiss bank, said it estimated housing supply by end of 2011 to be roughly 360,000 with oversupply potentially at 150,000 residential units. But this was not the case as many of the projects were not completed on time or have been put on hold
Dubai Real Estate Regulatory Agency CEO Marwan bin Ghalitha revealed earlier this year that the emirate will be addition of only 16,000 new residential units in 2012.
Property prices in Dubai have been rising with established communities already witnessing the increase and higher demand.
This website reported before that the total value of real estate transactions rose by almost 22 per cent to Dh27 billion in the first half of 2012 compared to Dh22 billion same period last year. In 2011, Dubai Land Department recorded 35,297 transactions worth Dh143 billion a 20 per cent increase compared to 2010.
Dubai best for business
While the economy is recovering, arguably at a slow pace, Bank of America Merrill Lynch believes that Dubai is “one of the best GCC cities in which to develop business.”
Its relatively small population (2.1 million people) and the ambitious objectives of the major Dubai-based corporates mean job creation should accelerate and support the real estate market.
In March, Dubai Economic Development Department (DED) said it was planning to issue instant trade licences to investors under a new “120 days hassle-free licence” initiative.
The department said the scheme is aimed to give businesses in Dubai a head start and promote the emirate's competitiveness.
The UAE, earlier this year, improved its rank in “Ease of Doing Business” to 33 this year from 35 in 2011, according to the World Bank's annual Doing Business report.
Although the current working population in Dubai stands at 1.3 million, the emirate aims to create 950,000 new jobs by 2020, with retail, tourism and related sectors fueling growth.
Retail sale to grow
Dubai is recovering quickly from the economic downturn. Tourism, sizeable household consumption and ample retail space are boosting the retail sector.
Business Monitor International estimates that UAE retail revenue increased by 5.3 per cent in 2011 to $31 billion and forecasts that it will rise to $32.7 billion this year and $42.7 billion by 2015.
Based on this sales projection, Bank of America Merrill Lynch said it estimates Dubai retail sales growth of five per cent in 2011-20.
“Over the same period, retail supply is projected to grow by only 4.4 per cent, suggesting that retail market penetration will remain stable and positive for retailers,” the report said.