Vol:03 Feb/09

2009 - Corrective year for Dubai Property Market

The global financial meltdown has led to major alterations in the Dubai real estate sector, the result being significant corrections in property pricings, legal and financing frameworks. Consequently, 2009 could very well be ‘the year of making' for Dubai property market, as price inflation cools down and the emirate introduces more rules and regulations to stabilize the sector. Last week, the government of the UAE announced that it is planning to introduce federal freehold residence visas, thus putting an end to speculation about foreign property ownership in the country.

Starting from this week, Gowealthy Research Team presents impartial analyses of the Dubai and UAE property markets by top industry watchdogs. Our objective is to keep investors updated on the changes in the world economy as well as prevailing investment climes and happenings in the regional and international real estate circles. This week, we present to you excerpts from reports by Jones Lang LaSalle and International Monetary Fund.

According to a new study by Jones Lang LaSalle, 2009 is a year of correction in the emirate's property market, with 2010 being a year of stabilization, ahead of a recovery in rentals and prices in 2011. The report points out significant corrections in property prices worldwide, but is firm about a market recovery. And, already recovery signs are emerging. The current global crises began in the financial markets in 2007 and the first half of 2008, before spreading throughout the real economy over the second half of last year. Tentative signs of an improvement in global credit markets are therefore encouraging. Five year swap rates have declined in the US and Europe in 2009 and shrinking TED spreads (the difference between 3 month treasury bills and LIBOR) indicate an increased willingness of the banks to commence lending to each other.

Since Dubai is closely linked to markets worldwide, recovery in overseas markets is bound to have a positive impact on the region's realty sector. "Dubai is the most global market in MENA and is one of the most global cities worldwide. This has served the city well during a period of strong global economic growth but now poses a greater challenge in a period of synchronized global slowdown. As the most global market within MENA, and the most advanced in its supply pipeline, Dubai has been the market that has been most impacted by the synchronized global downturn. Although market conditions have generally deteriorated, there remain opportunities for developers, investors and occupiers to take advantage of the new circumstances."

	Along with global market downturns, falling fuel revenues have also contributed to the market pall. If oil export revenues constituted 42 per cent of the MENA GDP in 2008, this year they are expected to drop to 30 per cent. However, the IMF predicts an upward tilt in the fuel prices in 2010 which would revive the Middle Eastern markets.
(GDP growth forecast for GCC at 3.5% this year is better  than that for the world. Source: IMF)
Although prices and rentals are expected to undergo correction across most sectors of the Dubai market in 2009, they are expected to gain equilibrium again as the market stabilizes in 2010.Jones Lang LaSalle predicts a steady, sustainable market growth in 2011.However in these lean times, the agency identifies a number of opportunities for the discerning investor. As a result of increased monitoring and tightened credit rules, the market is flooded with properties negotiating ‘distressed' prices.
	"The current economic crisis has created an opportunity to invest in prime income producing assets on a scale not hitherto seen in the MENA region. As the level of distressed assets being offered to the market increases over 2009, smart investors are likely to focus on real estate fundamentals such as location, asset quality and its resulting income stream.
(Despite falling oil revenues, MENA countries are expected to up spending. *Source: IMF)
There is also likely to be greater interest in tradable stock in new asset classes (eg: logistics, worker accommodation, education and healthcare) which may offer an attractive mix of smaller lot size, higher yield and greater cash flow security than more traditional asset classes."

Coming to Dubai, the Gowealthy Research Team expects government spending on key infrastructure projects to continue, despite financial crunch. There has been a lull in the domestic construction sector of late, due to global undercurrents. But, at the recently concluded International Property Show Dubai 2009, developers categorically denied rumors that construction work in the emirate has stalled. To silence detractors, many were showcasing actual photographs of their projects in various degrees of construction. Although there is currently no market for off-plan properties in Dubai, ready to occupy units like studios, 1 and 2 bedroom apartments are still in demand. Freehold communities like Dubai Marina, Jumeirah Lake Towers and Jumeirah Beach Residences have witnessed a price correction of 20 to 25 per cent since September 2008. For those investors plush with liquidity, we would recommend this as the right time to purchase property in Dubai. With the UAE government agreeing to issue unified freehold visas to foreign property owners within 2009, buyer activity is expected to pick up igniting demand and thereby prices.

Freehold property owners in the UAE to get residence visas Ending uncertainty about foreign property ownership in the UAE, a senior government official has revealed that federal law granting residency visas to owners of freehold property will be introduced within the year. The law will allow the owners to obtain a six-month renewable residency visa, regardless of their nationality or the size and value of the property. Brig Gen Nasser al Minhali, the acting director general of the federal Department of Naturalisation and Residency (DNR) said the aim was to create a unified visa system related to home purchases. Residency visas granted in the past would remain valid. But it would not be possible to renew them until the federal law was implemented. An integrated nationwide system will alleviate confusion over which emirate had which entitlement. This would help to restore confidence to the market, they said.