DUBAI MARKET VIEW February 2005

Dubai is a destination of unfathomable world ‘firsts’. Consider an artificial archipelago in the Arabian Sea shaped like a palm tree and visible from outer space or the Burj Dubai, at 800 metres (and 160 floors) the world’s tallest building. Think Disneyland of the desert and hey presto you have ‘Dubailand’, a US$5bn leisure and entertainment centre covering two billion square feet to live, work or holiday in, thus dwarfing Disney Paris in size and scope.

Dubai sports the world’s first underwater hotel, and what about the world’s largest fresh flower terminal for blooms in transit or even the Burj Al Arab, purported to be the tallest hotel on this earth. What about an Audi or Porsche thrown in with a property purchase. And lest we forget, there is ‘The World’ itself, the latest cluster of man-made islands representing the globe’s continents and countries. (With hefty price tags, only the super-rich need apply.) The list of ‘firsts’ is long, and ongoing – whatever the project, neither imagination nor expense has been spared.

The transformation of this once small outpost on the Silk Road – famed for its pearl trade – to a thriving and innovative dessert metropolis has been swift by anyone’s standards. “Dubai had the advantage of having a clean slate,” says Alexis Croucher, head of Savills Dubai section. And with miniscule oil reserves – unlike neighbouring emirate Abu Dhabi’s fourth largest reserves in the world – something had to be done. As far back as the early 1990s international experts were brought to Dubai to design a visionary future.

Fuelled by government acumen and economic clout – and with the aim of diversifying sources of income away from oil – over the past decade Dubai has become a gleaming highrise cityscape and nowadays has the second largest construction sector in the world. “While construction is the mainstay of GDP, technology is second to none,” says Mr. Croucher. “Cutting edge engineering means, for instance, that windows use photo-sensitive fibre optics that can sense the strength of the sun’s rays and adjust accordingly.”

The Property Market

Although many people think of Dubai as ‘too much, too big and too fast’, the real risk according to Mr. Croucher, is that Dubai doesn’t have enough properties. He explains: “All I can see is an under supply. Rents have soared – a year ago many studios that rented for AED34,270 (US$9,333, UK£5,000) are now double the price. Dubai has a shortage of accommodation.” Many who cannot find affordable accommodation in Dubai, end up commuting to work from Abu Dhabi, 120 kilometres away or neighbouring emirate Sharjah.

But for those who can afford to buy there is plenty of choice to suit a range of pocket books. At the lower end of the market is a ‘rent-to-own’ scheme, at The Greens, adjacent to the Emirates Golf Club where at any time before the lease ends, developers Emaar will refund 50 per cent of rent paid and apply it toward the purchase price. Studios cost from AED199,800, one bedrooms from AED363,800 and two bedrooms upwards of AED504,800.

At the top end is The World, where after an initial outlay of US$10m+ you’ll have the further expense of developing your country or continent from scratch, although each of the five to 20-acre islands include IT connections and GPS navigation. Potential buyers are vetted by the developers Nakheel.

Elsewhere and for a smaller outlay is The Palm Golden Mile on Palm Jumeirah, which features ten buildings of serviced apartments, penthouses and townhouses. Management is available through the Fairmount Hotel including 24-hour concierge and room service with an in-house engineering team and optional housekeeping/mail/laundry services. Owners can use the hotel’s private beach, swimming pools and other fitness facilities. The project incorporates 220 retail outlets with international boutiques, coffee shops and restaurants. At launch two years ago the cheapest units at AED651,127 sold out within six months. On a re-sale basis from Savills/IFA Hotels and Resorts, prices now start at AED1.7m for a one bedroom apartment of 1,300 square feet, even though they will not be ready for occupancy for another two years.

Marina Heights is a 53-storey tower on the water’s edge of Dubai Marina, opposite Palm Jumeirah. One bedroom Savills apartments of 900 square feet cost from AED822,326. A special mortgage arrangement with HSBC Middle East has been set up with Savills that requires a 30 per cent down payment with nothing to pay until completion, scheduled early next year.

Both developments offer freehold ownership and service charges under AED20,600 a year. Unfurnished but fully finished interiors use marble, granite and chrome throughout. Two and three bedroom apartments contain maid’s quarters. Kitchen appliances come with Marina Heights but not the Golden Mile.

A third Savills development with associate IFA Hotels & Resorts is to be launched in Dubai on 3 February and at a later date in the UK. Final prices for Laguna Towers have yet to be confirmed, but should be similar to Marina Heights. Mr. Croucher invites Investment International readers to contact Savills/IFA for pre-launch details.

Damac, Dubai’s largest private development company, is marketing any number of projects and, during Dubai Shopping Festival from 12 January to 12 February, are giving away free to every property buyer an Audi or Porche. “So successful was last year’s give away that we are repeating it once again,” says Damac vice president John Fish.

One of Damac’s many projects is Park Towers, situated in the new International Finance Centre. One bedroom apartments of 1,004 square feet are priced just under AED2m, up from AED1.6m last October. At AED3.9m and just over 2,000 square feet, large two bedroom apartments are on the market at the same price as three bedrooms with similar square footage. On top of each of the two 30-storey buildings will be a full range of sports and leisure facilities including an open-air swimming pool and gym. Room service, house-keeping and a 24-hour concierge service are available. Completion is expected in 2007.

In contrast Damac’s Terra del Sol is a five-floor low rise development at Discovery Gardens with its array of facilities from tennis courts to a football pitch. Studios of 484 square feet cost from AED573,000 and one bedrooms of twice the size are priced from AED937,000. The free car offer applies to all Damac sales.

Just how Dubai’s buoyant property will fare in the future is unknown. Most property experts expect a slowdown at some point. Just when is a moot point, but Damac’s Mr. Fish is clear when he says: “I predict this exponential growth to continue at least over the next five years. For now at least, there is no place like it on earth.”

Foreign Acquisition

Prior to 2002, the purchase of Dubai property by outsiders was prohibited. Property was owned outright by UAE nationals or not at all.

The ‘nuances’ of freehold vs. leasehold were unknown. But in May 2002 when the Crown Prince of Dubai, Sheikh Mohammed bin Rashid Al Maktoum issued a decree, foreign nationals from anywhere in the world were permitted to buy property. With freehold property came the right to three years (renewable) residence.

Note that this was a decision taken in the emirate of Dubai and was not federally constituted. Under the UAE constitution, land law is federal and has to be determined by the Supreme Council. “But if Federal law does not cover a particular issue, it is up to individual emirates to take decisions, which in practice means implicit acceptance by the federal authorities” says Mr. Croucher.

This year a new land law will come into force at the federal level that will incorporate previous local emirate legislation, including that of Dubai. The legislation, now in draft form, will be fully comprehensive and cover all aspects of land tenure from sharehold and commonhold to freehold and leasehold. “To cover every contingency, it has naturally taken some time to draft legislation that encompasses all the legal technicalities for what has gone from a simple to a complex property market in a very short time.”The

Basics

Should you decide to buy property in Dubai for holiday visits or long term stay, you’ll not have to worry about healthcare, for example Harvard Medical is just one of many international participants in the new medical hub. And the cost of living has its plusses. Though five star luxury prices differ little from elsewhere in the world, when it comes to the necessities of life, Mr. Croucher points out that you’ll pay around 25 per cent less than, say, London. Afterall, where else does a litre of petrol, at 18p, cost less than a litre of water?

Dubai is the size of Luxembourg and one of seven states in the United Arab Emirates (UAE) federation. Abu Dhabi, the largest and about the size of Portugal, is the capital. The UAE has one of the world’s fastest expanding populations and in Dubai a decade ago there were 650,000 people which increased to 1.1million last year, of which roughly 80 per cent are expatriates. By 2020 the population is expected to rise to 3 million.

Contacts:
Damac www.damacproperties.com
Emaar Properties www.emaar.com
IFA Hotels and Resorts www.ifahotelsresorts.com
Nakheel www.nakheel.ae
Savills www.savills.com