The price of freehold investments in Business Bay jumped by more than 90 per cent in 2007 and analysts have linked the increase to the new escrow law, delays in delivering office space and the strategic and desirable location. Prices increased by the largest percentage during the past four months, according to developers and real estate companies.
Shaher Mousli, CEO of Arthur Mackenzy Real Estate, said the issuance of the property law in July requiring escrow accounts or bank guarantees for all off-plan developments in Dubai was a necessary step taken by the government to protect investors and prevent developer delays. However, the move has contributed to an increase in property prices.
“The compulsory escrow account is aimed at putting an end to the trend when a developer could launch a project and collect deposits without a guarantee, so that the funds can be used correctly or immediately invested as promised,” he added.
However, the implementation of the law has dampened significantly the number of new projects launched at Business Bay, he said. And, subsequently, it resulted in a sharp increase in demand for the available projects.
Mousli added that his company is currently selling property for Dh3,000 per square foot on behalf of Omniyat Properties. “Our price is high compared to other projects as we apply advanced technologies. Some developers who have started with Dh1,500 per square foot are now selling at Dh2,500 to Dh3,000. Ninety per cent of our Dh3 billion three-tower project is sold out.”
Meanwhile, Mohammed Nimer, CEO of MAG Group’s Property Development Department, attributed the sharp increase in prices in Dubai’s giant office cluster to the shortage of office space and delays in delivery in the emirate in general. “Official statistics say the emirate’s population has risen by six per cent this year compared to last year. But I believe it is much higher,” he added.
As more companies chose to move offices to Dubai because of its infrastructure and tax-free status, the demand for office space has grown. However, the availability of office space is only a-tenth of the size of the residential property market, Nimer said.
Delivery delays have only tightened the crunch. Nimer said: “About 70,000 office units were rolled out through about 400 projects last year. But, only 30,000 units were actually delivered. This has resulted in a hike in prices.
“At the beginning of 2007, the price of our Matex project was Dh1,300 per square foot. Due to the demand it has increased to Dh2,000.”
Ibrahim Bash, CEO of Bawn Investments, noted that Business Bay’s proximity to Burj Dubai, Dubai World Centre and the Dubai International Financial Market has also made it prime real estate for companies looking to set up shop. The price jump seen in the area, he said, is higher than anywhere else in the emirate.
The price of Bawn’s Dh500m office project, he noted, started out at Dh900 and has now reached Dh1,800 per square foot.
Freehold prices rise