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.
Rising costs
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.
Drec established
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.
Registration deadline
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.
Escrow law
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.
Green Dubai
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.
International expansion
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.
The regulator
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.
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