Real estate sector to see prices levelling off this year

The real estate market in the UAE will see prices levelling off this year, but will be more inclined towards end-user, developers said.

Emirates Business spoke to Mohamed Binbrek, Group Chief Executive Officer of Dubai Properties Group; Markus Giebel, Chief Executive Officer of Deyaar; Gurjit Singh, Chief Property Development Officer for Sorouh Real Estate Company, Khaled Kalban, Managing Director and Chief Executive Officer of Dubai Investments, Imran Shaikh, Chief Executive Officer of Shaikh Holdings and Fahad Sattar Dero, Chief Executive Officer of Sweet Homes Group, all of whom unanimously said the government is taking due measures to ensure liquidity in the market that will spur the real estate market once again.

The real estate market in the country continues to witness growth, even if prices are at lower levels than in the recent past, developers said.

Dubai-based developers commended the legal framework and regulatory mechanism brought in by the Dubai Government, saying: "This will ensure greater stability for the industry and curb speculation."

Excerpts

What is your outlook for the real estate market in the UAE in 2009? Do you expect improvement in the market sentiments?

Binbrek: Over the past few years, the UAE has registered unprecedented growth in the real estate sector, which has been complemented by growth in trade, retail, tourism and banking and finance sectors. However, due to recent developments in the global economy, we have witnessed greater caution as expressed by these sectors and a variation in customer spending habits. We believe 2009 will witness somewhat softer trends compared to the previous years.

The underlying fundamentals for Dubai are relatively stable, however, some industry experts have called for prudence. According to latest research by HSBC Holdings, while advertised prices for properties in Dubai gained four per cent in November due to a shift by investors to smaller units, the sector may be approaching a "tipping point" as the number of homes advertised for sale has surged during the month.

Under these circumstances, we believe the vital legal framework and regulatory mechanism kept in place by the Dubai Government will ensure greater stability for the real estate industry while helping curb speculation, maintaining transparency and guaranteeing delivery of transaction system.

At the same time, the Dubai Government has taken key measures to withstand the impact of a global crisis by setting up a financial advisory council.

Giebel: There is no question the current and ongoing challenges to the stability of the global financial system are having an impact in the UAE, which is a fully integrated participant in the global economy. That said, the timely and appropriate intervention by the Dubai and Federal Government, to ensure adequate liquidity in the banking system has helped ensure the impact of the worldwide crisis is minimised here.

Further, the Dubai Government is now actively managing the supply of new projects onto the real estate market here to ensure supply-demand equilibrium. As well, bodies such as Real Estate Regulatory Agency (Rera) are working hard to put in place appropriate mechanisms to monitor market movements and provide appropriate guarantees to all stakeholders in the sector.

So while I can't tell you where exactly the market will go this year, it's clear the major developers, private companies and government bodies are all working together to ensure the market remains as stable as possible. Add to that the economic growth forecast for this country and the young and vibrant wider region, with its dynamic demographics, and I believe we have every reason to be confident that 2009 will be a good year for the real estate sector in the UAE.

Singh: The real estate market will align itself with global re-pricing of risks. Developments will be tempered with the availability of financing in the launching of their developments. Off-plan sales will be scarce and purchasers will be more discerning in their purchases, seeking developers that have strong balance sheets with ample funding in place as the purchasers will want to see physical development taking place before making their decisions.

Having said that, we believe Abu Dhabi is in a comparatively stronger position than almost any other market in the world, with high demand, limited supply and a growing economy and population all contributing to a comparatively healthy outlook.

There may not be improvisation as such but there maybe a need for developers to concentrate on securing funding before launching smaller phases of their developments and actually commencing construction before launching sales. Because as off-plan sales become scarce there may not be improvisation as such but there may be a need for developers to concentrate on securing funding before launching smaller phases of their developments and actually commencing construction before launching sales as off-plan sales becomes scarce and becomes less of an option to finance developments.

Kalban: The biggest issue for the UAE will be maintaining a steady growth of new jobs in the market. If we are able to create jobs, the demand will be high. It is reasonable to say the delivery of projects has pushed supply. The real problem will arise if the supply continues to be affected and the demand also reduces then we will have a large gap to fill. Real estate companies must not work towards retrenching staff as that will create a cycle and other industries will start cutting down jobs, as well. Having said this, we expect no improvement in the sentiment in the near term and all will depend on the liquidity situation in the market.

Shaikh: There has been a fundamental shift in markets around the world. As a result, the real estate market in the UAE has also experienced a price correction and properties are now trading closer to their fair market value. Looking forward in 2009 and beyond, we will see speculation disappear and the market purely be driven by end-user demand for buying and renting properties. Project development timelines are going to become more realistic and phased out based on existing demand. Companies will right-size and restructure to become more efficient and effective. We believe these changes are healthy and need to take place at all levels in the real estate value-chain, and will provide greater stability to the real estate sector and long term growth.

Liquidity is the key to developing confidence and a positive sentiment about the real estate market. In 2009, regional governments will play an active role in creating the structures that are necessary to facilitate capital flow to the banks. We believe bank lending to businesses and consumers will kick-start the activity and this will then begin to bring back confidence at the retail and institutional levels.

Dero: We are optimistic at how the property market outlook will turn out towards the end of the year but we are yet to see what 2009 can bring for us. We still see the market growing yet at a slower pace. Property developers will focus more on getting their projects finished and they will be aided by a drop in commodity prices and slashed down construction costs. Property is never a deal of loss as it is always something that is in constant demand. It is the personal position of the property holder that makes it so. The real estate market is experiencing the effects of a global credit crunch but there are investors who are still on the lookout for a good bargain.

Are you launching projects this year?

Binbrek: At this point, we are only channelling our resources towards current projects under implementation around Dubai. Dubai Properties launched many exciting projects in 2008 including Mudon, the Dh40-billion residential community spanning over seven million square feet that is our biggest development to date. The Dh50-billion Culture Village is another spectacular project spanning 40m sqft.

Giebel: Beyond what we have already publicly announced, we cannot point to other new projects at this time. But Deyaar is broadening its geographic outlook and diversifying its portfolio. We are currently conducting due diligence on a range of international opportunities. At the same time, we remain focused on building new communities that meet the needs of our clients, and delivering them on time and to the highest standards. We feel strongly there is a continued need for middle-income housing here in the UAE and in the wider region, so that will be one of the key focus areas for us in 2009.

Singh: At this stage we are in the thick of our implementation plan and it is premature to release any information for our developments in 2009.

Kalban: We will not be looking to launch anything in 2009 and 2010 is too far to tell.

Shaikh: No, we are not planning to launch new projects in 2009. We are focused on our current projects and specifically on building superior product and delivering on our promise of quality. Sanctuary Falls is a resort-style villa community that we are developing in Jumeirah Golf Estates. Work on our Sanctuary Falls villa project is moving as per schedule, with 68 villas under construction. Given the current economic trend, developers need to be diligent and thoughtful in planning their developments and allocating their resources. We have always been conservative in our approach and have been careful only to launch and build supply to service the existing end-user demand.

Dero: Yes, we have a project ready for launch. We may launch it when the environment is conducive and the property market variables show positive signs of improvement.

How do you see the profitability and revenue earning of your company in 2009?

Binbrek: We do not see any negative impact on the profitability and revenue earning of the company. Our business model is diversified and based on a combination of annuity streams and recognition of sales done in previous years and handed over in 2009.

Giebel: As a publicly-listed company, Deyaar must, of course, exercise discretion in providing any guidance on future revenues or profitability. That said, given our healthy capitalisation and strong balance sheet, we believe that we are extremely well positioned to seize current market opportunities and sustain our growth in the year to come.

Singh: This is market sensitive information.

Kalban: We have achieved a cash surplus of around Dh2.2 billion as of September 30, 2008, and we believe that figure will be higher by the year-end. But all will depend on our year-end financials.

Shaikh: We see solid profitability this year for our company since we have had no defaults and collections are strong. This is because our buyer profile is excellent with quality end-users investing in our projects. We will be looking at investments that provide a value addition to our product offering. We are also researching investments and acquisitions, that are appropriately priced and the asset exhibits strong fundamentals. We believe some good deals will materialise in 2009 and we will be watching closely for attractive investment opportunities.

Dero: We are not heavily affected by the economic crisis but we have felt a slight pinch due to the economic situation of our existing customers. In terms of profitability, we were able to sell majority of our projects before the economic downturn set in. So, we are focused on finishing our projects this year.

Do you expect real estate prices to level off due to the global economic crisis?

Binbrek: We expect to see a levelling off of the double-digit growth in real estate prices to single digits.

Giebel: Globally, this is already happening nearly everywhere, as I mentioned earlier. As I also mentioned, while I can't tell you where exactly the market will go this year, it's clear that the major developers, private companies and government bodies are all working together to ensure the market remains as stable as possible. Add to that the economic growth forecast for this country and the young and vibrant wider region, with its dynamic demographics, and I believe we have every reason to be confident that 2009 will be a good year for the real estate sector in the UAE.

Singh: Based on the current trends of real estate prices in the UAE, the GCC and other markets, realty prices will consolidate in the UAE. This will be good for the market as astute real estate investors and end-users will see value for money and this will ensure steady demand from end-user occupiers.

Kalban: There is nothing wrong with the real estate values. What really has been affected is the investor sentiment, which plays an important role. The most important fact is that the speculators who escalated prices to high levels have left the market and in that sense the realty market will not grow as it used to previously. Again, it all comes down to the liquidity situation in the market.

Shaikh: The real estate market in the UAE has already undergone a price correction and properties are now trading closer to their fair value. We believe the market will experience a metamorphosis in 2009, with speculators exiting the market and the emergence of mature market investors with a medium to long-term investment perspective. As government bodies such as Rera implement regulations that allow greater transparency, security and ease of transactions this will also encourage greater foreign investment into the UAE. We believe property prices will stabilise throughout all segments, however, certain projects with inherently strong attributes will be well placed for capital appreciation in the future.

Dero: Yes we see a flat graph as far as real estate prices are concerned. But we operate in Ajman, which we view as the place of opportunity for real estate investments.

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