Dubai property price boom draws towards an end

Dubai has a demand for 40,000-50,000 residential units per year, with 69,000 units to be delivered in 2007, said EFG Hermes' 2006 forecast, a figure revised this autumn to 25,000.

More alarmingly the 2006 report said that in 2008 some 139,000 units were due to be handed over, although delivery dates next year were even more likely to slip than in 2007, as only 14 per cent of these units will be completed by large developers, compared with 75 per cent in 2007. The landmark EFG Hermes' 2006 report looking at property in the region found that a period of stability in 2007 would be followed by a cumulative 25-30 per cent fall in values by 2010, albeit the range of potential price decline outcomes is very wide. The major caveat is that this analysis is predicated on there not being any significant slowdown in the economy which would weaken the flow of expatriates into Dubai. So if oil prices came unstuck in the forecast period, the outlook would be very different.

Developer optimism

When the report came out, local property developers generally took no notice, but there was a slowdown in new schemes, particularly after the massive final rush of new projects at last year's Cityscape trade show. One thing that certainly kept the property boom alive into 2007 was the continual delays to major projects, such as the Jumeirah Beach Residence and The Palm, Jumeriah. In practice, it was still hard to find completed accomodation to buy or rent in early 2007. EFG Hermes revised its 2007 completion prediction to 25,000 units in autumn 2007, and saw prices rising moderately until a belated correction in 2009 mainly due to delivery delays. Yet local developers continued to roll out new projects until the summer. There was a change in focus with ultra luxury, high-rise condominiums and high-end villa communities coming to the fore, while commercial property launches in the Business Bay kept on rolling.

Sky high ambitions

It is a notable feature of global property booms that the most ambitious projects usually come late in the cycle, and of course reflect the then very high land values. Another common feature is the building of super tall buildings and Dubai is set to have the world's tallest building, The Burj Dubai. At the time of writing, the market is still booming with participants anticipating a lively autumn once Ramadan is over. No less than five more super-tall buildings, not including the Burj Dubai, are on the drawing board or at the foundation stage. In fact property rentals continued to rise in the summer of 2007 even if capital values seemed to have levelled off since the spike observed in September 2006. The general belief is that after a five year run, the Dubai boom is almost over with modest price rises until a decline in 2009, or at least that is EFG Hermes' view.

Dubai rents hit $3,500 per month

Rental accommodation in Dubai now averages almost $3,500 (AED 12,850) per month, according to figures from consultancy firm ECA International.

The price tag makes the emirate the 14th most expensive city in the world for tenants, behind places such as Hong Kong, Tokyo, New York City and London. ECA surveyed 92 cities around the world, basing its figures on the average price of renting a three-bedroom apartment.

The firm said rental prices in Dubai have increased approximately 100% in the last decade. This increase was not as high as that in Doha, where the average rent rose 130% in the same period.

Despite such a large increase, Doha still ranks behind Kuwait City, Jeddah and Abu Dhabi, according to the ECA survey. The average rental price in Doha now stands at $2,246, compared to $2,429 in Abu Dhabi, $2,476 in Jeddah, and $2,594 in Kuwait City. Muscat was judged the Gulf's cheapest location in which to rent accommodation, and the sixth cheapest in the world.“Dubai and Doha have seen unprecedented growth in recent years as they establish themselves as premium business centres and luxury cities,” the report stated. “This development, coupled with a continued influx of expatriates, has resulted in new very high standard properties being erected, driving up the average rental price.” In an effort to control rental costs, authorities in Abu Dhabi and Dubai have introduced annual rental caps on residential properties.

In Dubai the government cut the cap by more than half at the beginning of this year. Landlords are now only allowed to increase rents by a maximum of 7% per annum, compared with 15% last year.

Many analysts believe that rental costs in the UAE could fall or at least level as more properties in its well-documented construction boom are completed. A rental cap may then become unnecessary.In another survey released this week, property consultancy CB Richard Ellis found office rents in Abu Dhabi surged by an average of 103% over the 12 months to May this year — a higher increase than anywhere else in the world.

Source: Arabian Business

Business welcomes Dubai rent cap

The 7% rent cap set at the beginning of the year in the Dubai has been welcomed by the real estate industry. Omar Ayesh, President of Tameer Holding, said that the government’s decision was necessary with skyrocketing rental prices forcing an increasing number of residents and companies to relocate to neighbouring Gulf States.

The government’s main reason behind the rent cap was to reduce inflation rates by 6% or 7% from last year’s double-digit figures, with rents making up around 40% of the total inflation figure. “This was a long-term decision to stabilise the market. The expenses for companies based in Dubai have been doubling in the last two years and it was needed,” Ayesh said.

He dismissed the idea that investors would shy away from buying property now that the returns on rents have lowered. “Rents are still high, and investors make more than enough profits when renting out their properties,” he said. “Properties in Business Bay, for example, sell at US$1200 per sq ft, and they are rented out for US$250 per sq ft — a profit of more than 20%,” Ayesh added. Saima Khan, managing director of Taktical Realty Group, agrees that the cut was desperately needed to keep the property market stable. “The authorities realised that, unless they introduced limitations, high rents would increasingly prompt residents to move to the neighbouring emirates,” she said.Khan added that the Dubai property market would “definitely undergo a price correction”. “A correction is positive. It was predicted to happen this year, but I don’t see it happening until the end of 2008.”According to a study by investment bank EFG Hermes, Dubai has a demand for between 40,000 to 50,000 residential units a year, with 69,000 units set to be delivered in 2007 and 139,000 units in 2008.

The study links Dubai’s property cycles to those of Singapore, which went through a boom between 1998 and 2000 with prices up 37%, and then a short period of stability before a sharp drop of 30%.

Source: Arabian Business

Average Rental Rates for Residential Apartment

Source: Emiratestodayonline

UAE gets Dh1.7tr freehold injection

Members of Dubai Property Group (DPG) say Dh1.7 trillion has been injected into UAE freehold market with 30,000 units planned for delivery in 2007, but supply is still lacking for mid-income earners.

The group, which is made up of developers, consultants and real estate agents, also says the enormous growth in the real estate sector should be bolstered with legislation aimed at regulating the market and driving strong future growth

About 14,700 units were planned to be delivered in 2006 and another 30,000 units are expected for 2007.

Source: GulfNews