The US sub-prime woes failed to dent the UAE real estate market, which saw local and international companies launching projects worth billions of dollars in 2007.
Dubai took a bold step forward creating a new regulator and unveiling escrow account rules to safeguard and protect the booming realty sector.
Even as construction costs continued to soar in the wake of rising inflation and increasing cost of imported raw materials, Dubai’s real estate remained economically competitive as a global destination. However, analysts have said Dubai has emerged as one of the most expensive business cities globally, with an average rent of $98 per square foot of commercial space – an increase of 19 per cent over 2006.
In spite of this, it is lower compared to cities such as Mumbai ($189.1), Moscow ($180.1) and London ($180.8). Residential real estate prices in the emirate increased between 10 and 15 per cent in 2007 and analysts predict a five to 10 per cent rise in 2008, peaking in the second half of this year.
The price of construction raw materials rose between 15 and 20 per cent through 2007. The price of cement, concrete and rebar (steel reinforcing rod) increased between 15 and 20 per cent, while steel beams by up to 45 per cent.
International real estate and construction consultancy EC Harris said that although inflation in the industry had slowed in 2007 – compared to a 25 per cent rise in 2006 – input prices continued to rise. Its figures showed raw material costs alone would be approximately 19 per cent higher in 2008.
Experts said overheads also rose due to the success of an amnesty for illegal workers, which saw more than 250,000 people leaving the country. This in turn led to manpower supply issues and rising salaries among unskilled workforce.
In the first week of December, Imad Al Jamal, vice-president of the higher technical consultative committee at the UAE Contractors’ Association, became the first to seek official intervention to stabilise prices.
One of the main reasons for the price rises is inflation. Industry experts believe that indirect taxes were another reason for the rise in prices.
In June, the Dubai Real Estate Corporation (Drec) was established under the Dubai Executive Council. Drec is a public commercial institution, affiliated with the Dubai Executive Council.
The corporation owns and manage all the properties registered under the name of Dubai Government, including building, investing and utilising of commercial and industrial lands and properties in Dubai.
Ahmed bin Byat became the first chairman of Drec and Dr Omar Mohammed Ahmed bin Sulaiman was appointed as the Deputy Chairman.
In the last week of December, the Land Department announced that property owners who have not yet registered with it will be given a mid-2008 deadline. The department said owners who have not registered run the risk of paying registration fees based on the market value of their property rather than on the initial purchase price.
The department also said it will launch a two-month awareness campaign to urge owners of residential units in Dubai to register their property. After the deadline, a fee of two per cent of the unit’s market value will be levied. The registration costs two per cent of the nominal value of the sold unit. The developer and buyer pay one per cent each.
In July, the Dubai Government unveiled Law No 8 related to guarantee account, bringing more transparency into the flourishing property market. About 400 real estate developers have been officially licensed by the Real Estate Regulatory Agency.
Twenty banks have been approved for operating trust accounts. The law comprises several articles that set regulations for real estate market, organises building functions and sales of housing units in a way so as to guarantee purchasers’ rights. It bans real estate developers licensed to buy and sell real estate from advertising in local and outside media channels or participating in exhibitions unless they obtain written approval from the Land Department.
In October, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, issued a resolution wherein all new buildings must meet strict international criteria for construction and design from this month.
With that decision, Dubai is set to become the first Middle East city to ensure buildings meet global environmental standards in a move that is likely to boost efforts of conservationists and is in line with Dubai’s Strategic Plan 2015.
Property developers and contracting companies have since gone back to the boardroom to make the necessary modifications to their projects under development. Efforts are also on by industry professionals to find additional space in the budget to make the green updates to each project. A green building, according to experts in the field, minimises energy and water use and provides a healthier environment for residents. However, the terms of the regulations are yet to be announced.
The Leadership in Energy and Environment Designs (Leed) standards will be applied to all new developments, with an aim to improve the impact buildings have on the environment as well on residents.
Buildings that meet Leed standards reduce building-related illness and increase the environmental sustainability of construction, according to experts.
Minister of State for Cabinet Affairs and Chairman of Dubai’s Executive Office Mohammed Abdullah Al Gergawi said: “The move is an important step to help international efforts to bring climate change under control. Sheikh Mohammed’s decision to introduce innovative strategies underscores support to international efforts to address environmental challenges.”
The new headquarters of Dubiotech is set to be one of the world’s largest green buildings. The Leed certified 22-storey headquarters and laboratory buildings will be home to the centre of excellence for biotechnology, with two connected buildings oriented to maximise daylight and views, while minimising greenhouse gases.
Rent cap reduction
In the last week of December, Dubai lowered its rent cap by two percentage points to five per cent from the existing seven per cent, effective from today. With a view to curbing rising rents and its impact on the country’s inflation – which hit a 19-year high of 9.3 per cent in 2006 – the government had first intervened with a 15 per cent rent cap in 2006. That was followed by a reduction in the cap to seven per cent for 2007.
The new rate comes into effect amid concerns that demand for property continues to outstrip supply, driving up rents in the booming Gulf trade and tourism hub.
Economists have said soaring rents threaten to undermine Dubai’s strategy of attracting investment and expatriates, as companies begin to consider less costly cities in the Gulf. They have predicted that residential property prices would begin to fall in 2009, a year later than initially expected because of a delay in supplies.
UAE real estate firms started venturing into other markets, with Emaar Properties and Damac Properties having already invested more than Dh550 billion in markets throughout the world.
Other companies such as ETA Star and Tameer also announced overseas projects worth billion of dollars last year. Limitless recently announced investments in India, while Emaar expanded its reach to the United Kingdom.
According to Rashed Zakaria Doleh, CEO, Emaar Malls, companies need to invest now and not wait for tomorrow. He, however, made it clear that companies can no longer come to Dubai just to make quick money and leave. “They need to invest for long term,” he added.
Similarly, real estate firms from Singapore, China, South Korea, India and Pakistan have tied up with the UAE companies to diversify their portfolios. An issue of concern for the realty market has been the slow growth of mortgage sector.
In the last week of July, the Dubai Government set up the Real Estate Regulatory Authority (Rera), which now functions under the Dubai Land Department and regulates real estate developments in the emirate.
Rera supervises real estate developers, financing companies, real estate management institutions along with associations of real estate owners and brokers. It also has control over real estate strategies, policies, registration and regulation.
Before Rera was set up, the Dubai Land Department oversaw all land and private property affairs in Dubai. Marwan bin Ghalita became the first Chief Executive Officer of the Rera.
The Land Department now has the assistance of an executive and corporate organisation. Its main responsibilities lie within a framework of eight specific areas that include: licensing all real estate activities, managing developers’ trust account, licensing and organising real estate agents, regulating and authenticating rental deals and regulating and supervising owners’ associations.
Global credit crisis fails to slow down UAE’s stride