The real estate sector has dramatically transformed over the past twenty years. Elaine Jones, Founder and Executive Chairman of Asteco, discusses the changing landscape.
Why property is still the asset class of choice for investors
Although further declines are expected, Dubai’s real estate market will continue to mature throughout 2019 as the government’s strengthened commitment to stimulating the local market will boost confidence.
With limited revenues from the oil industry, Dubai used (and still uses) its enviable location as a key advantage to develop trading activities – initially through the establishment of the Jebel Ali Port free zone in 1980, a dedicated area allowing 100 percent ownership for businesses.
Following the success of this model, further zones – more than thirty in Dubai in total – were created, resulting in an inflow of expatriates.
Twenty years ago, around the time of the new millennium, many Emirati families were professional landlords and built property to suit the growing expatriate community. During those days, property ownership was limited to UAE and GCC nationals.
Lease terms and landlord/tenant responsibilities were uncomplicated and often covered by the blue or green lease, available at the stationers, which had twelve or so clauses and a similar contract across all emirates.
1999 was also the year of planning for the development of the Palm islands, as well as the launch of the first Emaar properties at Emirates Hills and Dubai Marina, which were available on a 99-year lease basis.
Early stages of development
In the early 2000’s, The Gardens (129 buildings with over 3,800 units) were developed to accommodate the JAFZA and Jebel Ali Port workforce who were commuting to and from Sharjah. However, as Dubai Internet City (one of the free zones) completed concurrently, the apartments were swiftly leased to those employees. As more business zones were being built and the population grew, demand for property far exceeded supply.
In 2002, the Dubai Property Group was formed with the intent to bring greater regulation to the real estate market. For the first time in Dubai, the concept of an MLS (Multiple Listings Service) was introduced and studied – up until then, properties were listed in the printed newspaper.
In addition, focus on the different asset classes and how their lease documentation should differ was a priority, and work ethics and industry standards were highlighted and introduced.
When the Palm Jumeirah was launched for sale to all nationalities in 2002 – which facilitated the introduction of a decree allowing international freehold ownership and resulted in the creation of numerous freehold areas – there was unprecedented interest and growth in the Dubai property market.
Entry of global investors
Not only did buyers from across the world arrive to find opportunities, but the real estate industry took on a completely new form.
As a result of the unparalleled growth, the Real Estate Regulatory Agency (RERA) was established in 2007 to bring order to the chaos and regulate the ever-expanding property market. In the same year, the Strata Law was introduced and saw the establishment of the Home Owners Association. Whilst currently in need of more empowerment and autonomy for the owners of property, the introduction and implementation resulted in a unique and evolving framework.
Over the years, master developers Emaar, Nakheel and Dubai Properties challenged each other by introducing one spectacular project after another. Opportunities to buy land and develop buildings and projects never previously contemplated were studied and many brought to the market.
The excitement of buyers queuing, often overnight, to secure a property and then sell at a premium before leaving the sales office resulted in quotas being set and ticket systems being introduced – i.e. limiting the number of properties that can be bought per person, or the requirement of a certain percentage of the sales price to be paid before the units can be re-sold, also commonly known as ‘flipping’.
Before everything stopped around 2008/09, there was a realisation that buyers needed to be protected more. In 2007, the Escrow Law was issued to regulate developers and safeguard purchasers’ money in respect of off-plan property purchases. Just in time, due to the onset of the global financial crisis, many projects were put on hold or cancelled.
This resulted in a sustained downward trajectory until around 2012/13 when the market began to show signs of recovery with the Euro Crisis and Arab Spring conflict leading to Dubai being considered an attractive alternative and safe haven to invest and live in.
In addition, in November 2013, Dubai won the bid to host the Expo 2020, which up until 2014/15 led to growth in market confidence, a rise in new project launches and increased sales prices and rental rates.
The continuous launch and delivery of new real estate projects over the last three years (2016–2018), coupled with regional and global economic headwinds, resulted in the contraction of sales prices and rental rates, and a marked oversupply in certain sectors and/or areas.
Mix of buyers
Whilst historically, His Highness Sheikh Rashid Bin Saeed Al Maktoum’s philosophy was to build more property for expatriates when rents got too high, there is a difference today. The Dubai real estate market comprises a significant number of individual and institutional owners who secured property due to the attractive rental yields. It will take some years to absorb what has been and is going to be built, and more business is needed to grow the population.
For one, manufacturing, assembly and distribution together with trading and the constantly growing tourism and transportation sectors will contribute to the long-term stability of the real estate market. The substantial increase in the use of PropTech, such as Direct Debit, online services and virtual reality has greatly enhanced the process for buyers and attracted a fair number of foreign buyers.
In a constantly changing landscape, although further declines are expected, Dubai’s real estate market will continue to mature throughout 2019 as the government’s strengthened commitment to stimulating the local market will boost confidence. Reformed business and visa regulations will allow the market to gain traction by becoming more accessible as a global destination, thereby advancing investment in the real estate sector and the larger economy.
It is likely that the current ‘buyer’s market’ we are facing will persist. Investors and tenants will continue to have a wealth of choice available to them and increasing handovers will further impact property prices across the UAE. This, however, also opens the market to a wider investor pool and facilitates a rise in end users and first-time buyers. And with yields for commercial properties still outperforming established markets such as Hong Kong, Singapore, and London (3-4% versus 7-8%), Dubai will continue to attract buyers with a medium to long-term investment horizon.
Founder and Executive Chairman of Asteco
Connect with Elaine Jones on LinkedIn
This article was first published in Prestige Vol. 39.