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Real estate industry at the crossroads

As the regional head of CB Richard Ellis, the largest property services firm in the world, Nicholas Maclean advises Gulf clients investing abroad and attracts foreign investment into the Gulf. With uncertainty surrounding real estate globally and locally, how does he expect local property markets to cope with the threat of dampened demand and falling prices?

Where do you think the regional real estate market is heading?
The overriding factor affecting the market is uncertainty. Because the number of transactions commercially and residentially have declined substantially over the last six weeks, it is quite difficult to determine where value lies. There are people in this market who need to finance debt in other markets. The residential market here has undoubtedly softened, particularly the apartments market.

That has not come about as a result of a satisfactory supply pipeline, it’s come about wholly from people seeking profit-taking. If you look at a medium term view of six to seven years there is still an undersupply in the market here. There is going to be quite a lot of residential real estate delivered over the next two and half years, but that will not satisfy the requirements of 300,000 new people moving here a year.

Why do you think demand has dropped off in the last few weeks?

Lack of mortgage availability is a factor. People are also tightening their belts because of their commitments to finance elsewhere. People may have bought a property in London or in Paris and, they will be saying, which is the easiest market to exit from? Where are people least committed?

Also, the increases in prices were not sustainable. That came about because of the relative ease of entering the market with the [easy] availability of mortgages. People’s short term view of the market was ‘come in, make a small deposit and then exit immediately’. Also, if people start to be concerned about their jobs, is this the time to buy a property in Dubai? Probably not.

Do you envisage a Singapore scenario where you have a lots of half-constructed or empty buildings with developers unable to sell units?

I think there will be schemes that will not be finished and I think they will be stopped at all stages of construction; some won‘t start and others will be suspended. But the developers have to continue to make the model of off-plan sales work. An alternative could be some sort of up front funding from the banks where you sell once your scheme is completed. This is not a system which has been used here, but it does work effectively in other markets around the world.

How heavily linked is the residential market in Dubai to the office market?

The size of the office market in Dubai is about 35 to 36 million sq ft, about the size of Dublin. The population of Dubai is around 1.7 million, also roughly the same size as Dublin. Dublin, however, is not a global financial centre and yet it can occupy its accommodation quite easily.

When you start to look at what is going to be added to this market — potentially another 60 to 80 million sq ft of accommodation over the next six years- the real test to whether there will be proper absorption depends on population.

You need to continue with 300,000 people coming here every year, of which half have to be office occupiers. If you do that, and the population in Dubai reaches 4 million — what it is projected to grow to by 2015 — then all that office space is sustainable. In order for that to happen you need good residential supply. There aren’t enough units for 4 million people here and so there is an indirect link with office supply and residential.

Are you involved with any residential work in Dubai?

We don’t buy and sell real estate here but from time to time, increasingly so in fact, we have been asked to acquire residential real estate for CEOs of companies that are coming into the market place. If we were asked to acquire an expensive apartment in Milan, we happen to have a residential component to a business in my Milan office.

If we wanted to do the same in London, we have an agreement with Hamptons. Sometimes we do it ourselves or we just make a recommendation as to who is best.

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