Real Estate Development in Dubai - Research Paper Example

?Real E Market The History of Real E in Dubai Dubai has experienced some tremendous growth in the last few decades not only in the financial sector but also in real estate. Dubai has become a world hub with the increased attention that it has received through some billion dollar real estate projects such as “The palm Island” and “Burj Dubai”. The real estate in Dubai is exquisite and important owing of the government’s decision to allow foreign investors which resulted in appreciation of the property value. The tallest skyscrapers and the costliest projects in the world are situated in Dubai. There are close to 2, 50,000 employees who are mostly south Asian working in real estate projects across Dubai. (Dubai History. n.d) In 1990, under Sheikh Mohammed governance, some very interesting real estate projects were designed and executed like the seven star Burj Al Arab Hotel which became the tallest free standing building in the world. The emirates towers became the tallest commercial building in Asia, Europe and Middle East. During the same time, other notable buildings, world class ideas, mega projects were designed and executed to make a mark in the international arena. Sheikh Mohammed wanted Dubai to be the hub and the location for international investment. The rentals and the return on investment far exceeded the expectation with greater benefits. Sheikh Mohammed also helped in promoting the development of real estate through Emaar properties which is the largest real estate company in Dubai. (Cooper, 2004) One of the turning points in the history of Dubai real estate was on May 2002 when the government had declared freehold property on land. It was also during this period that the government had also familiarized foreigners to buy freehold property. Prior to this, only UAE nationals were allowed to buy and own property in Dubai which was only on a 99 year lease and this was not very popular with the public. It was only after the adoption of the freehold property and foreign investment that the real estate in Dubai had a boom in the residential property. Dubai then became a city which was built on good ethical practice, foreign investment and good projects. (Cooper, 2004) Foreign Investment in Dubai Real Estate Sector Until 2002, the UAE law had strict rules and policies and did not allow expatriates from owning any property. They were allowed only to rent property or own the property on a lease period approved by the federal law. It was only during this year that the Dubai government had permitted the expats to buy and sell property and this revolutionized the real estate sector. This decision was taken after understanding that the petrol and the oil reserves which form the main economy booster might perish in 10 years. One of the main strategies of the government was to improve the service sector and the local real estate market in Dubai. (Foreign Investment in Dubai, n.d) The demand for both commercial and residential property market increased rapidly because of the change in government policy. The expatriates from non GCC countries were also allowed to hold properties in the country and this was regarded as a great leap in Dubai as this was not imposed in any other emirate country. There was a sudden increase in foreign investment especially from UK and Europe in the Dubai real estate market. (9) In the recent years the city has been a constant attraction for expat investors. The real estate market in Dubai is largely driven by foreign investment especially the non- Arab companies and individuals, their freehold investments total around 60-70% of the entire real estate market. Statistics state that every 3rd property is held by expatiates or foreign companies who live outside Dubai. The portfolios of the investors range from Pakistan, India and other emerging markets such as S. Korea and Brazil. (Foreign Investments Spurs Dubai Real Estate Growth, n.d) Iran is one of the leading and the major partners for Dubai and forms at least 30% of the total business done in Dubai. The Iranian association in Dubai is the bigger than any other association in other countries. There are more than 10,000 Iranian companies in Dubai operating in different sectors but particularly more in the real estate market. To promote Iranian investment and real estate business in Dubai, there are number of shows that are held by the Iranian business council. The real estate transactions made by Iranians has increase each year by 10% constantly. In fact a number of Dubai’s biggest skyscrapers are owned by Iranians. With the legalization of foreign nationals holding property in Dubai, there has been a tremendous increase in number of Iranians investing in housing constructions. (Corsi, 2006) Foreign investment is usually allowed to encourage better working relations with other countries and also increase the foreign capital. Foreign investment law was established in 2008 by Dubai to protect and provide better opportunities for foreign investors outside Dubai. Between 2002 and 2006, the Dubai property market had reached a mature state and developed into a strong investment sector for expatriates. Dubai is a very diverse cultural group with multiple nationalities including Europeans, Indians, Africans and N. Americans. Statistics confirm that only 17% of the total population comprise of UAE nationals, the rest of the population are expatriates from different countries around the world which makes Dubai one of the most diversified countries in the world. With the given trend of immigrants the need for housing also increases simultaneously. The reason for the increase in the rental rate in Dubai is that most of the foreigners can afford high rents as the city offers them high tax free salaries. The infrastructure is excellent and marvelous and all the fortune 500 companies have there office set up in Dubai. The free trade zones in Dubai are very liberal and most of the companies and businesses like to set up their operations in the free zone. (All information About the UAE Real Estate Market, n.d) Some of the land marks in the Dubai real estate- 1. Dubai Marina ; a 3.5 km long beach hotel which became the focal point of New Dubai 2. The Palm Island which became a big sensation and attained international fame, is a reclaimed island shaped as a palm tree 3. The seven star Burj Al Arab Hotel is the tallest building in the world 4. The walk 5. Vision Tower 6. The Villa 7. The executive towers 8. Business bay 9. Bay Avenue Real Estate Market: By 2005, there were more than 170 skyscrapers and high raising towers facing the famous Jumeriah Beach. During this year, HSBC announced mortgaging of properties which showed some sign of development in the real estate market. Both the rental and real estate market in Dubai are rapidly expanding.Dealers and the investors expect a 30% return on investment on the properties. Dubai is a very good investment alternative for many foreign investors as the UK and European real estate is more expensive. Dubai is considered to be the hub for business and tourism spots. It has a very cosmopolitan, sophisticated and multi ethnic groups spread across the country. Since international investors comprise of 80% of the total population, the scope for renting out properties to them for a higher price is common. (Dubai Freehold Property, n.d) The reasons for Dubai being an attractive place for investment; Weather, luxurious lifestyle, green space and quality of life play a very important role in the popularity of Dubai. It is a politically stable, ideal tourism spot, business friendly city. The free trade zones are considered to be the best in the world. Exchange rates which prove to be less expensive than the UK and other European markets. Cosmopolitan culture and people: Dubai is a lively and open place which has people with all religions, good educational and healthcare facilities. The cultural diversity and acceptance to foreign traditions and ethnicity of western culture also plays an important role. Secure return on investment: There is also a high value for money for the investors. The return on investment is around 30-40% of the money invested. Geographical proximity of the city which is centrally located and is close to Middle East, the Indian sub-continent and complimented with a good sophisticated and refined way of living As it is one of the few tax free places in the world, the foreign investors find Dubai an ideal place for investment, to start up a business or buy a luxury house. (All information About the UAE Real Estate Market, n.d) Economic Downturn The Dubai real estate market has always had an upward trend for almost 7 years with many major building landmarks and huge projects completed. There was a great demand for these projects and as a result there were excess supply of properties and estates .Along with the global recession, the real estate prospects and prices went down. Dubai has been one of the victims of economic recession and downturn. There has been an increase in unemployment which further caused vacancies of many properties.There have been so many changes that have taken place and the government has put in substantial efforts to revive the industry. (Real Estate in Dubai, n.d) Since the 2008 global recession, the Dubai real estate market has also been affected. The UAE real estate market in general has been considerably weak during 2009. There had been some substantial improvement in the market in 2010. There has been good progress and stability in the property market in 2011 this far. The progress is evidenced because of the narrowing gap between the asking and the attained rates. It is also believed that the property market in Dubai, UAE will be one of the best performers in 2011. The recovery in the Dubai real estate castor has been dull as there has been an excess supply of properties but majority of the real estate analysts feel that this sector will also have significant improvement. (Maroof, 2011) One of the major mistakes that the realtors and the investors made was not holding onto their investments. “Holding of investments” means once the investment is made and if the market is not performing well, hold the property until the market recovers and not withdraw them immediately. It is basically a stock market strategy but can be applicable in real estate market as well. Although holding onto the property cannot earn the investors profits, it will definitely improve the market conditions. (Maroof, 2011) In 2009, Emirates had a total outstanding debt of $80 billion and most of it was owned by the government owned Dubai world ,which is the parent company of Nakheel- the creators of “Palm” and “the world” The company had to work on restructuring plans to revive the situation. Recently the company was re-negotiating the payment plans with its investors as there has been a considerable delay in the execution of these buildings. The prices in Dubai are slowly recovering and since, there has been an increase in the investors this year, many proposed projects will be launched. To cope with the oversupply of the real estate properties, both Dubai and the UAE government has created a number of job opportunities and employment options to increase its population. The increase in population will reduce the number of vacant properties which will indirectly increase real estate prices. The government has also taken many steps to improve the economy of Dubai. It is also strategizing many long term and short term improvement plans in the real estate market. Hence, there are bright opportunities in the real estate sector. Once the market improves the prices of Dubai apartments, villas and commercial properties will improve and thus increasing the return on investments. According to some sources, Dubai has shown some good revival from the global recession this year in terms of economic development. The tax free status in Dubai is also one of the reasons why many investors and multinational companies want to invest in the real estate sector (Maroof, 2011) There are number of factors that had resulted in the current downturn- 1. Developers selling their properties for enormous mark up prices: As there was an increase in demand for properties, the developers took the opportunity to increase the price for a number of projects. Now that the market is sluggish and slow, there are a number of assets which have a reduced value and the investors are attempting for distress sale of these properties because of the down ward pricing trends. 2. Developers encouraging foreign property investors- As Dubai was one of the attractions for many of foreign companies and expatriates, developers took advantage of the significant interest and started advertising properties to overseas investors. This led to excess demand in the market which led to the increase in supply. 3. Government did not balance the demand and supply in the property market- There is a general opinion that one of the main reasons for Dubai’s current economic downturn is because of the government. People believe that the government was not proactive in curbing the demand and the supply in the property market. 4. RERA for protecting the property developers- The Real Estate Regulatory Authority of Dubai (RERA) was very keen on protecting the interests of the property developers as primarily the government required good builders to supply projects in the market but people believed that the government was overprotective of its developers which allowed the developers to hike the prices of the properties. (Clancy, 2009) Dubai Investment and Speculations There are lots of speculation with regards to the trends in the real estate market in Dubai regarding the success and the viability. There are many properties still in the pipeline, 30% of the properties are still under construction, there is also speculation that there would be excess supply with less demand for real estate and the city will be flooded with unsalable estates. Many investment experts have also gathered information that the international monetary funds are constantly urging the Dubai government to impose tax. There are speculations that Dubai will be forced to levy income tax and sales tax on properties and businesses. This might also have a great impact on real estate and the flow of foreign investment will be affected drastically. There is also a lot talked about the unwillingness and displeasure in the rulers of other UAE countries regarding the free open market for foreigners. Since there has been a slump in the real estate market, Dubai has to attract more foreign investors in order to revive. (Clancy, 2009) The current market analysts indicate that the residential property prices are stabilizing but there is no major increase in prices on property values. The current transaction level on real estate has also increased by 50% from the first half of the year. The general outlook in this country is optimistic and there are signs that Dubai will again rise as one of the major players on the international property market for many years to come. (Clancy, 2009) Literary References All information About the UAE Real Estate Market [online] retrieved 17th April 2011 from website http://www.aboutdubai.org/ Cooper P (2004) A short history of Dubai Property, retrieved 18th April from website http://www.ameinfo.com/43838.html Clancy R (2009) who to blame for the Dubai Property downturn, retrieved 15th April 2011 from http://www.propertycommunity.com/property-in-dubai/160-who-to-blame-for-the-dubai-property-downturn.html Corsi J.R (2006) What About Iranian Investments in Dubai [online] retrieved 17th April 2011 from website http://www.wnd.com/news/article.asp?ARTICLE_ID=48964 Dubai History [online] retrieved 18th April 2011 from website, http://www.dubai-architecture.info/HIST-DUBAI.htm Dubai Freehold Property (n.d) [online] retrieved 17th April 2011 from website http://www.bhomes.com/uae/dubai_freehold_property.xhtml Foreign Investment in Dubai Property [online] retrieved 17th April 2011 from website http://www.dubaicity.com/about_dubai/dubai-foreign-investment.htm Foreign Investments Spurs Dubai Real Estate Growth[online] retrieved 17th April 2011 from website http://www.realtyna.com/dubai_real_estate/dubai-rss-news/foreign-investment-spurs-dubai-real-estate-growth.html Maroof S (2011) Dubai Real Estate blog retrieved 17th April 2011 from website http://www.dubaishortstay.com/dubai-real-estate/ Real Estate in Dubai [online] retrieved 15th April 2011 from website http://www.dubaishortstay.com/dubai-real-estate/ Read More