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Dubai is back

by CW Staff on Dec 14, 2012


Dubai experienced 4.1% growth in GDP over the first half of 2012.
Dubai experienced 4.1% growth in GDP over the first half of 2012.

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There are hints of a return to confidence in the Dubai market and some project announcements are getting in early, but will there be funding available to turn ideas into contracts?

Dubai is reviving massive real-estate projects as its economy recovers from the global financial crisis and downturn in the construction industry. Does this mean the boom times are back?

Given the number of major real-estate announcements over the past few weeks, one could be forgiven for thinking that we were back in 2006 and 2007 again, reports Jones Lang LaSalle MENA in a media statement.

Recent official announcements have recalled the heady days of the mid-2000s, when Dubai was building some of its most striking projects, such as the Burj Khalifa and Palm Jumeirah. Dubai ruler H.H. Sheikh Mohammed has unveiled plans for Emaar Properties and conglomerate Dubai Holding to build a new city called Mohammed Bin Rashid City.

It is planned that this will include the world’s biggest shopping mall, a title held at present by Dubai Mall.

A local property analyst, speaking on condition of anonymity, told Reuters estimated that it could cost between $20bn and $50bn, with the upper end of this range being well over half of Dubai’s yearly economic output. H.H. Sheikh Mohammed also announced that Dubai planned to build a $2.7bn complex of five theme parks at Jebel Ali.

Other projects hitting the radar in the last few months include the extension of Business Bay Canal and a mooted $1bn replica of the Taj Mahal. These are all clear signs that the Dubai economy is recovering on the back of the ‘three Ts’ of trade, transport and tourism, with the Dubai Statistics Centre releasing new figures that show real GDP growth of 4.1% over the first half of 2012 (the fastest growth rate since early 2008).

Encouragingly, there are also indications that some of the lessons of the last real-estate crisis have been learned. The most important of these is the need to adopt a long term and co-ordinated approach, rather than developing too much real estate too quickly.

Another factor to consider is that not all announced projects are likely to attract funding. Banks remain wary about lending to real-estate developments at a time when they still have to make major provisions against non-performing real-estate loans from the last development boom.

“Our 2012 Real Estate Investor Sentiment Survey (REISS) shows that investors also remain cautious, preferring completed income producing projects than development plays or land.

Given the understandable reluctance to rely so heavily on ‘offplan’ sales as in 2007-08, the level of available finance is likely to act as a natural anchor, limiting the number and timing of the announced projects that proceed,” said Jones Lang LaSalle CEO Alan Robertson.

“We are definitely seeing a return in confidence to the Dubai real-estate market. This is still Dubai, and it is as ambitious as ever, but we are also seeing a more mature and considered approach, which is only going to benefit the long-term health and credibility of the real-estate sector among domestic and international investors and stakeholders.

The key to the success of individual projects and the future performance of the overall market will be the adoption of a realistic phasing strategy in line with market demand,” said Robertson.

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