Dubai property growth 'broader but slower' in 2013
Mothballed projects could restart as recovery permeates through market
The resurgence of Dubai's property market during the latter half of 2012 is likely to continue during 2013, but at a slower rate than in 2012 and at a more varied spread of locations, according to Jones Lang LaSalle.
Speaking to Construction Week after an event at which the consultancy unveiled the likely property trends for 2013, Jones Lang LaSalle MENA region CEO Alan Robertson said: "We will see some mothballed projects coming back to life - maybe in a different format to what they were. Parts of Dubailand, as I understand it, will be overtaken by Mohammed bin Rashid City. Some will be restarted...Others I think are so remote that that they are still a long way from being feasible."
The firm's report states that factors such as the UAE's economic growth, increased employment and the fact that Dubai is still seen as a safe haven in a region where political instability still exists in Syria and Iran, will help to continue to facilitate growth in market - albeit at a slower rate than the 20% or so increase experienced in residential property prices achieved in 2012.
Presenting the report, Robertson said the growth of the UAE's economy has resulted in an increase in employment opportunities, which was helping to fuel confidence in the emirate's property market.
"Accurate recent data is difficult to come by, but the consensus appears that both population and employment in the UAE is up by 2.5%-3% in the last year."
Announcements such as Mohammed Bin Rashid City, the five new theme parks at Jebel Ali and the relaunch of the Business Bay canal extension project have created significantly improved sentiment in Dubai's various property sectors - all of which were now showing signs of improvement.
"The danger of this is that that improved sentiment can turn into overexuberance - pushing both prices and supply to unsustainable levels.
"Our view is that that this will not occur and 2013 will be a year of a more broad-based recovery with the selective performance increases of 2012 percolating through the market to impact on a broader range of projects and locations."
One of the main reasons for this is ongoing funding constraints for new development. During the boom, much of the development was funded by off-plan sales, but "there is currently much less appetite among investors for buying units off-plan," according to Robertson.
The UAE's banks also remain overexposed to the property sector and the likelihood of raising money through share sales or bond issues "will be restricted and limited to a small number of selected developers".
"We're not aware of any significant IPOs in the real estate sector for several years now and this is unlikely to change in 2012."
Loan-to-value ratio caps being introduced by the UAE's central bank will also serve as a brake on potential price inflation, as will the continuing pipeline of supply - a further 550,000m2 of office space is expected to be delivered in 2013 on top of the 570,000m2 delivered in 2012 and 1.03m in 2011.
Vacancy rates for office space already stand at around 30% in prime areas such as the central business district, but are as high as 60-70% in other areas such as Business Bay.
Investors in Dubai will most likely be cash buyers, and will increasingly come from overseas markets in East Asian markets like China and South Korea, as well as from sub-Saharan Africa, and potentially from Australia.
"Investment into the UAE from Asian corporates is not a new thing - it's been going on for some years - but this year with think we will see that investor interest span out of industry and commerce and into real estate.
"The UAE government has been very proactive in strengthening relationships with China and South Korea, with very good reasons. That has provided Chinese and Korean construction and contracting skills, financing, technology and so on - as well as new sources of capital. We think some of that new capital might find its way into the property markets."