Dubai's push for development is seeing a demand for more affordable housing, hotels and office space
Dubai’s reputation for the extreme is well known. The emirate boasts a fleet of police supercars, and has a healthy regard for ambitious projects that push technical boundaries while seemingly collecting accolades faster than staff based in Dubai’s own Guinness World Record offices can print them off.
The latest, announced a fortnight ago, is a proposal to build a sprawling network of underwater tennis courts off the coast of Dubai. It seems a preposterous idea that faces monumental technical challenges that may see it ultimately founder – much like the idea of the rotating skyscraper which did the rounds a few years ago – but Dubai’s can-do attitude and passion for the unusual is a fertile environment for bold ideas.
The emirate has an indoor ski-slope; there are plans to create a rainforest in the desert; it boasts the world’s tallest skyscraper, largest aquarium and biggest shopping mall. Why not an underwater tennis venue?
The emirate’s property concerns, however, are a little more down to earth. With tremendous growth in GDP – 4.4% in 2013, 5.2% in 2014 and 4.5% expected in 2015, according to the Department of Economic Devlopment – comes more business, more people and the requisite pressure on housing, office space, infrastructure, education and health services, and resources.
According to the Dubai Statistics Centre, the emirate’s residential population rose to 2.33m by the close of 2014 – maintaining a steady 5% increase seen annually since 2010. In fact, Dubai has experienced a remarkably stable annual 5% growth in population since 1993 when the total stood at 610,926. Since then, the population has almost quadrupled – with 50% of those aged between 20-35.
To keep pace with that demand, Dubai added 420,000m2 of office space and an extra 16,000 residential apartments and villas in 2014.
Dubai’s resurgence from the economic crisis which rocked the globe in 2009-2010 has been remarkable, but 2014 was a year where capital growth levelled off in the property market, particularly towards the close of the financial year. In fact, residential sales in H1 2014 exceeded peak prices seen in 2008 – but cooled considerably during the second half of the year where monthly sales declined due to a more cautious approach from investors.
Demand from key market sources such as Russia and Egypt saw year-on-year transaction numbers more than halve, from 1,700 per month in Q4 2013 to just 828 in Q4 2014.
Robin Williamson, managing director of Deloitte Corporate Finance, explained that wasn’t necessarily a bad thing.
“While possibly not welcomed by traders and speculators, this new characteristic suggests a market that is in fact maturing and arguably strengthening. Provided growth continues at sustainable and realistic levels over the medium term, this is likely to improve end-user and investor confidence, which will have obvious benefits to the Dubai property market as a whole,” he said.
Deloitte’s team of experts suggest that the cooler trend will continue for the remainder of 2015, with residential sales growth at around 1-5% in the first half of the year, and another period of stabilisation during the second half.
Driving that is a need by both nationals and expats for more affordable homes – particularly in areas like International City and Sports City, where new developments are underway and demand is likely to increase.
In its UAE Property View - Q1 2015 Report, Asteco says the first three months of this year showed little or no movement for Dubai’s residential sales market, but noted that a renewed focus on affordable housing has spurred local government, investor and developer activity.
Jon Stevens, managing director, Asteco said: “There have been a number of launches in recent months that have proven extremely popular in terms of take-up. Moves by Dubai Municipality to augment existing, reasonably-priced rental stock, with the allocation of over 100 hectares of land in Muhaisnah 4 and Al Quoz 3 and 4 to developers to build affordable housing for rent, to those earning between AED3,000-AED10,000 per month.”
Those launches include the release of 1,000, three- and four-bedroom townhouses at Zahra and Hayat in the new Town Square masterplanned development by Nshama, where an off-plan, three-bed townhouse in the development costs around AED1m ($272,000).
Other developments include Acacia Heights and its 479 apartments at Mohammed Bin Rashid City and Reef Residences, with its 378 apartments in Jumeirah Village Circle.
“This highlights the continuous expansion of the city further inland as developers target the more affordable segments of the market, with Damac having led this trend with its Akoya Oxygen project,” Stevens said.
“Value-for-money has become more important than property prestige, and with a noticeable decline in buyers from Russia and the CIS countries due to the worsening economic situation, this is prompting new opportunities, and we are seeing more GCC investor interest in reasonably-priced properties, led by Saudi Arabia and the UAE, including off-plan projects specifically designed for investors,” he added.
Rental rates remain relatively static, with minor adjustments seen in selected areas – and a keen interest in developed communities with affordable rates for families. Most tenants in these developments are happy to simply renew their contracts than relocate.
“For villa rentals, the limited supply of stock in the ever-popular Jumeirah/Umm Suqeim area was good news for Al Barsha, and we saw increased interest here, driven also by location accessibility to schools and the city’s major attractions,” said Stevens.
As a global tourist destination, Dubai’s reputation continues to grow.
The city welcomed 13.2m visitors in 2014, representing a year-on-year increase of 8.2%. Dubai expects this number to grow to 20m in 2020 in time for the six-month Expo 2020 event.
That not only means the emirate will need to build more hotels to cope with demand, but Deloitte suggests there is a growing demand in the midscale sector which will increase over time. A key hurdle for this, however, has been inflated land prices – something which has been countered by municipality tax exemptions.
Emaar has already announced plans to open 10 mid-market hotels in Dubai and around the region by 2022 under its Rove hotel brand, and the Department of Tourism and Commerce Marketing received over 50 applications for new three- and four-star hotels last November alone.
This trend was emphasised during Construction Week’s UAE Infrastructure Summit in March, when Saudi-born architect Sumaya Dabbagh said that while Dubai had traditionally marketed itself as a luxury shopping destination, the demographic of tourists now visiting the emirate was changing.
“There is a real need now, even among Saudi visitors, for more affordable hotel rooms – three- and four-star hotels where big families can stay without paying five- star prices. Events such as Art Dubai
are attracting a lot of homegrown talent, which is also creating a demand for lower cost accommodation.”
Office space in Dubai has more than doubled since 2008 to around 77m ft2, representing a 1% jump on total leasable space in 2013. A number of new developments will come to market in 2015, pushing supply to over 80m ft2. By 2019, Dubai will have close to 89m ft2 of major international Grade A office space.
Mat Green, UAE head of research & consultancy for CBRE Middle East, said: “Strong economic fundamentals and increased government spending towards infrastructure projects have been instrumental in maintaining a healthy equilibrium across the real estate sector during the first quarter.
“Positively, Dubai hasn’t experienced a slowdown in demand as a result of the declining oil price, largely due to the diverse nature of the emirate’s economy and the UAE’s position as the regional business hub,” he said.
“The commercial office market is anticipated to see continued strong demand across major freezone locations,” Green added.
“However, the current global economic situation could lead to an elongation of negotiation and deal periods, as head offices in Europe and the US take longer to sanction moves amidst ongoing uncertainty, low oil prices and rising regional unrest.”