When Dubai learned that it had been chosen to host the 2020 World Expo trade convention late last year, fireworks exploded from the Burj Khalifa, the world’s tallest building. There was certainly plenty to celebrate: the emirate’s authorities say the expo will prompt about £4bn worth of investment in infrastructure projects.
This will further boost what has been a period of accelerated growth in the local economy and housing market. In the past 12 months developers have announced a series of mega projects so ostentatious (and expensive) it is as if the 2009 crash – when property prices fell 50 per cent and half of all construction projects stalled – never took place. By some estimates, the new projects, which include the largest shopping centre in the world and a $1bn replica of the Taj Mahal, will cost £112bn.
Rising demand for property in 2013 has led to soaring prices. The market has drawn growing numbers of Europeans looking to avoid heavier taxes, as well as buyers seeking to escape turmoil in Africa and other parts of the Middle East. The latest research by estate agent Knight Frank suggests that prices in prime locations have risen by 22.2 per cent, while the International Monetary Fund quotes increases of up to 37 per cent.
Expo 2020 is likely to boost this recovery further. “We have seen some people holding off putting their properties on the market until after the Expo announcement,” says Helen Tatham, director of residential at Knight Frank Dubai. “It is very good news for the country. We will see strengthening in prices of projects in new locations that are well placed to provide accommodation for the workforce that Expo will attract, and developments such as Downtown, Palm Jumeirah and Dubai Marina will become even more intense. There are even rumblings of plans for a building taller than the Burj.”
Concern over property price inflation is mounting, of course. The IMF warned the Dubai government in July last year that another property bubble might form if it did not act to curb growth. In response, the government announced in September that it was doubling the deed transfer fee to 4 per cent of the purchase price in an attempt to curb “flipping”, where apartments are bought and sold very quickly for capital gains.
The move appears already to have had some effect. The total value of residential deals fell 19 per cent month on month in October, although Henry Faun, a researcher at Knight Frank, says that prospective price increases could outweigh the initial upfront cost. “Perhaps a restriction on the number of off-plan ‘flip’ resales available or increased fees to do so may be more effective steps in regulating the market,” he says.
But do these price rises necessarily indicate the type of property speculation and debt-heavy marketplace that contributed to the 2009 crisis? Local agents and developers insist the price rises have been driven by a lack of supply rather than empty speculation, and that developers are now more risk averse. Even the IMF admits the fundamentals underlying growth have improved. “We’re not talking about a bubble right now,” says Harald Finger, the IMF’s mission chief for the UAE. “We’re talking about later. Whether over time this growth is sustainable. Is it speculative? And will demand keep up with supply?”
The demand certainly seems to be there at present. When Emaar Properties launched the Address Residence Fountain Views in January last year, its 280 apartments sold out on the first day, despite new rules that require investors to come up with a minimum 40 per cent deposit before being allowed to resell. Under the payment terms, buyers will have to make a downpayment of 15 per cent, followed by further instalments before its 2016 completion date. By contrast, before 2008, many properties were bought with just a 10 per cent deposit.
The “rising star” of the recovery so far, says Tatham, has been the popular Downtown business district, home to the Burj Khalifa. The 829-metre skyscraper was completed at the height of the financial crisis and 10 months after it opened more than 90 per cent of its apartments sat empty. Today, almost all its units are occupied and prices have bounced back to just above their original level.
Damac, one of the developers worst hit by the crisis, has launched Prive by Damac, a high-end residential project close to the Burj. Also proving popular are Palm Jumeirah, an artificial archipelago, and Dubai Marina. At the marina, apartments in Le Reve, where Tiger Woods and Roger Federer are said to own penthouses, are twice what they were at the 2007 launch. Apartments, not villas, are leading the way, with rent rises of 30 per cent in the past year attracting investors.
There is plenty more to come. The hotly anticipated Mohammed Bin Rashid City will feature 1,500 upmarket villas and a 350,000 sq metre water park. Jones Lang LaSalle predicts that about 40,000 new residential units will enter the market over the next two years. Dubailand, a large mixed-use development between Dubai’s two airports, is likely to become increasingly popular due to its proximity to the Expo site. Knight Frank is selling a six-bedroom villa at Al Barari Villas in Dubailand for AED 18.49m (£3.08m).
“Days of oversupply are long gone, at least in prime locations where prices are rising,” says Michael Lahyani, chief executive of property portal propertyfinder.ae. “There aren’t that many good apartments available in hot areas, such as the Burj or on Palm Island … The good projects are in high demand, which results in price rises – pretty basic fundamentals.”
The UAE’s Real Estate Regulatory Agency is considering other options to control the market, such as a mortgage cap of 75 per cent, although how this will affect a market dominated by cash buyers remains to be seen.
The real issue remains the pace of delivery for the new projects. “If construction and off-plan launches start to outstrip demand then we will have a problem,” says the IMF’s Harald Finger. “Developers and the Dubai government are saying that they do want to go gradually. The tricky part will be whether, as the recovery picks up, they will maintain their vision.”
● Prices may have shot up but they are still about 30 per cent below their 2008 peak
● Dubai can be extremely hot and humid – in the summer it can reach 50C
● If you are buying a property off-plan, expect to pay about 10 per cent as an initial deposit and then staged payments on specified dates until completion. This should be clearly stated in the contract
What you can buy for …
£500,000: A two-bedroom flat in Downtown
£1m: A five-bedroom villa with a private pool in the Arabian Ranches community
£3m: A three-bedroom apartment in Burj Khalifa, or a four-bedroom villa on Palm Jumeirah