The real deal

With billions of dollars waiting to be spent in the Middle East, real estate has, and is still, taking the lion’s share of regional revenue and will continue to do so for the next five years. CEO Middle East gives you an expert bricks and mortar blueprint of where, when and how you should invest your capital

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By  James Bennett Published  October 1, 2006

|~||~||~|The old adage ‘location, location, location’, is the universal rule of thumb when buying, renting and investing in a property anywhere on the planet, but take a look at any spot in the developed world and you’ll see a rising tide of political tensions and taxes. Any spot apart from the Gulf region that is. For the past decade the UAE in particular has taken the globe by storm with some of the most ambitious large-scale property development projects the world has ever seen. In both commercial and residential real estate sectors, the UAE and the region’s business hub of Dubai has seen unprecedented demand for office towers, apartments and villas in order to maintain and satisfy it’s 90% and rising expatriate workforce, as well as the increasing numbers of individual foreign investors looking to purchase a holiday home that also doubles up as a rentable asset in the months they are in their home countries. And there are no signs of this trend stopping any time soon. The latest freehold laws allowing foreigners to buy their own homes in a wider choice of areas within the Emirates — announced earlier this year and set to be finalised by the end of 2006 — have opened up the market even wider, while the increasing number of banks launching new financial products to investors, and freeing up the mortgage market, is allowing even more people to access a market that was previously out of their monetary reach. Billions of dollars worth of cash is exchanging hands between real estate companies, contractors, developers and investors every hour of every 24 in Dubai, and not a day goes by without the announcement of a new project. And despite rising rents, lease prices and the general cost of living in the UAE, experts widely predict that the market is set to continue to benefit and boom from increasing demand, cash and finance. So how can you get in on the act? Let’s find out. CHANGE From a traditional Bedouin lifestyle surrounded by barren desert and financed by pearl fishing, to a business capital culture surrounded by high rises and financed by oil and tourism, nowhere has the real estate market experienced more change then the Middle East in the past 20 years. However, it is only in the last three years, says Faris Saeed, general manager of Diamond Investments, that the market has skyrocketed — and in favour of everyone concerned. “There is more business for everybody. People love to own their own properties and they now have a chance to own it, feel more secure and stable. CEO’s should buy here without a doubt,” he says. Around 56,000 new properties are forecast to become available by the end of 2006 with 280,000 residential units planned to come up by 2009. The property market, although booming, in some senses, has only just begun in Dubai. Saeed says that the next two years will bring about some major developments and that with the increase in properties and the success of Dubai, investors have also matured in their buying habits. “Two years ago our clients knew nothing about Dubai. End users had no options because the supply was limited. Investors now have more options than ever before and they are more aware than ever that spending time doing their own research, including where to buy, which developer to chose, and asking all the right questions pays off when making a bricks and mortar investment decision. “They didn’t have the time to ask before, because in the past if they asked a question, the property was usually gone,” adds Saeed. THE TIME I$ NOW Commercial property in Dubai is the hottest sector of the lot and with demand massively outstripping supply and every large business looking to use Dubai as their Middle Eastern business hub, now is the time to invest, says Harshit Kantaria, managing director of Aspire leasing sales and property management, the company that sold the trio of 40-floor Jumeirah Wave Business Towers in record time. “Not a single square inch of commercial property has been delivered to date but will be by 2008. If you look at the residential market, almost half of Dubai has already been delivered,” he says. “Dubai is already perceived as an international financial capital. All of the Fortune 500 companies are looking to hold an office here, there is a constant flow of people everyday and all these people need workplaces,” he says. “We expect that over the next three years you can’t go wrong buying commercial property in Dubai. It’s a great investment, so buy now.” COMMERCIAL VER$U$ RE$IDENTIAL Commercial property is the backbone of the real estate market. Without office space people don’t come to live in the region — simple fact. Many experts, however, have said that to start building large residential areas in Dubai without first constructing office space was a mistake. Kantaria agrees. “The demand has previously been residential from international investors, and consumers looking to buy holiday homes with residential projects being launched one after the other. “They all tactically invested in residential, but ignoring commercial property was a colossal mistake because you can’t expect people to occupy houses if they don’t have a workspace. People come to Dubai to work and to gain a source of income, without that there’s no point buying a house,” he says. One area attracting attention is Business Bay — Dubai’s premier, centrally located commercial district — but also one where any business will have to pay the price to locate. Lots and floors are being snapped up with prices averaging AED 1300 (US $354) per square foot. Many real estate agents we spoke to believe that any company that is serious about being in the Middle East for years to come should ensure that they take up the option in the Bay. “The average price is 1200 square foot selling price,” says Saeed. “This is very expensive, more expensive than Dubai Marina although plot prices are the same. Get in now.” RE$IDENTIAL The most established sector in the real estate market is set for its second wave, according to Diamond Investments’ Saeed, that sold 95% of its 1300 apartments in Dubai Marina, one of the most prized living areas in the city. The downside is that rental prices have seen a record rise forcing many people to reconsider remaining in the emirate, however for those wishing to make a fast buck, renting an apartment to wealthy holidaymakers or business people, the climate is ideal. “The government has capped rental rates at a maximum of 15% a year, but rent has been practically rising between 50% to 70%. If you decide to stay on in your apartment for another year the landlord will increase your rent by 15%, but if you leave they will almost double it and someone else will snap it up,” says Saeed. A growing trend in real estate is the foreign investor. As more and more buyers learn about the Middle East and Dubai via roadshows, the internet and the mass media, an increasing wave of foreign investment is pouring cash into regional property markets. “60% of our clients are from outside of the region that won’t live in the apartments but rent them out. 40% are from the UK and 15% from Iran, the two biggest areas but we have 50 nationalities within the complex,” he adds. This competition will also increase prices, but equally bump up the investment and resale value of properties across the emirate. CO$T Ironically, demand in Dubai is rising and showing no signs of a slowing down, however, rental costs are doing the same with prices virtually doubling and prime space sometimes selling out in a matter of minutes. New York is now cheaper than Dubai, says Saeed, but people are still determined to live and work in the emirate. “They are coming in thick and fast but they are now calculating their investment costs and are a lot wiser than in previous years.” Compared to many areas of the world, however, Dubai remains relatively ‘cheap’ for many investors with the promise of a tax-free lifestyle still drawing in huge crowds. The fact that there are no hidden costs such as taxes, stamp duty and other regulations means the Dubai property market is a very clean and clear business. And unless you meet an unscrupulous broker who offers you fake papers, you are guaranteed to strike a good deal. “The Dubai government is protecting the rights of investors in every possible way. You can’t get in on a project without giving bank guarantees, so there’s no way any investor will lose on a project. This safeguards their interest and only happens in Dubai. Have you ever seen a single investor losing money in Dubai?,” says Kantaria. RETURN$ Ask anyone involved in real estate in Dubai and the reply you will get is that your property will double in one or two years of holding onto it, whether residential or commercial, and more importantly even if it is built or not. Customers who want a completed property will face higher prices due to extreme demand, while those willing to wait should snap up what they can today, says Kantaria. “Nothing has been delivered so far so whatever is on the market has to be pre-booked or pre-sold. In the next 12 months I don’t see more than three or four projects being delivered. “If you look at the trend in Dubai, 60% are houses and apartments converted into offices. What does this mean? It means until supply increases, you can’t get office space in Dubai.” “In the meantime people should grab whatever they can. If you want to operate a business here, take whatever you get. It’s not a matter of choice, it’s a matter of availability. We ourselves are in the middle of an office we didn’t want but we are here for the time being, eventually we’ll move to Jumeirah Village or Business Bay.” INVE$TMENT or NECE$$ITY? Experts will tell you that it is both. For example, if you come to Dubai looking for office space, you will almost certainly need a residence, or you may even need a business location for your wife or husband, for example. Either way you are looking for property to capitalise on a business necessity and with it comes an investment. “You know if you buy today, tomorrow so many people like you are going to come to you and say they need space. If you have space you get your premiums on top,” says Kantaria. DOWN$IDE$ There are little or none. Naturally, investing a large sum into commercial or residential property brings with it certain risks, but you will almost certainly make money in Dubai. And when the banks get their acts together offering even more finance products, an increasing number of people will suddenly flood the market, making demand surge, supply dip and your property value boom. “Once the freehold laws are clear and confirmed the price will increase and every resident will buy his own apartment to avoid the incremental price increase. Buy while you can,” adds Saeed. ||**||

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