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Sat 2 Dec 2006 04:00 AM

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A second chance

Overseas property buyers, looking for a safe haven in Dubai, are on the upsurge. Alexandra Dubsky reports on the growing number of foreign buyers.

Ali Mansour, a 31 year old accountant, moved from Baghdad to Dubai this summer.

He grew up in the Iraq of the 1980s - back then, it was a flourishing country, with a prosperous economy and a large, wealthy middle class. Mansour comes from such an environment, but with Iraq being on the verge of a civil war he is more than happy to have come to the UAE.

He has just bought a three-bedroom villa from one of Dubai’s master developers, and although he is single now he considers living there with a wife and kids one day, since moving back to Iraq is not an option for him. “The Americans got rid of Saddam, but they did not give us anything else. They want our petrol, which is okay, but they should build up the country first. They are just as bad as Saddam. I guess we will have a revolution soon. I do not think I can live there ever again,” he says.

Mansour is not alone. Thousands of wealthy Iraqis, Iranians, Lebanese, Russians and even Chinese are flocking into the UAE in the search of a stable and economical, promising home. So-called insurance buyers who are troubled by the gloomy political situation in their respective home countries. Once an overseas buyer purchases a home in the UAE he gets a resident visa for him and his family - this factor alone is enough reason for many to buy property in the UAE. This group forms consequently a significant part of today’s real estate buyers, investing millions in the market.

“There is nothing new about this trend, Dubai has for years been this safe haven that is immune to the political insecurities in the region. Some two billion people live within reach of only a few hours flight. Within this radius you find many of these troubled nations. Let’s say of the two billion, 100 million have these kind of problems – that is a large number of possible clients,” says Naaman Atallah, executive director, sales and marketing, Emaar Properties.

“The market is now an end-user market, it is real demand that drives it. Thousands of new residents, insurance buyers and others are coming to the UAE every month, so these projects fill an urgent accommodation need of the rapidly increasing population. Despite the common assumption that we build too much we really only offer a rather limited amount of products compared to the demand, which keeps growing and growing,” he adds.

Walter Hart, director of project sales and marketing at Better Homes, says, “There is no doubt that many buyers come here from the region to secure a resident visa.

Three years ago around half of our clients were Iranians. Today this figure is lower, I guess most of those who have the financial capability to buy property there have already done so. The largest group of buyers today comes from India and the UK.”

Citizens of the former Soviet Union are another major group of property buyers in the UAE – they invest here for lifestyle choices different from what they have back home.

Many developers therefore recently introduced a list of countries whose citizens need to produce certain documents that trace back their funds when buying properties here.

“Russia is on this list, but Iran and Iraq for example are not. Not every developers, however, requires these documents, mainly the larger ones do. We still have many Russian buyers, they like luxury objects with a sea view,” Hart says.

H. Kerem Turkmen, managing director of the Taktical Realty Group, part of Taktical Holding, argues that Dubai is the Switzerland of the Middle East – with no crime, no political problems and great economic growth. “The UAE is by far the most reliable and most liberal country in the wider region. Besides Arabic and Western buyers we also have many clients from natural resources-rich African countries. We now see mainly genuine end-users who buy properties, as opposed to three years ago when 90% of the buyers were speculators that never intended to live in the units.

This is a great sign since it signals that the market is maturing. I would say around 40% of buyers are now from the Middle East and the subcontinent who are mainly end-users, and the rest are European and American, of which some 60% are end-users,” he says. He continues, “Last March Dubai Municipality issued 56,000 new resident visas.

Even if just 10% of those are end-users of high-end developments it equals to 5,600 people. Compare this figure to the whole of Jumeirah Beach Residence, which is 7,500 units, and you will see where this market is going.”

He reasons that Dubai’s population of around two million can be compared to a medium size town centre of a large metropolis. “Dubai is something like the Manhattan of the wider city. The town will probably double in a few years, and all areas around it will develop fast. As long as the population grows at this pace, we will never see a big market correction."

“As the market gets more mature and end-user driven we also see more segments that perform differently. For example, the villa market is now better than the apartment market, since there is more supply of flats. Also the office space market is booming. We will reach an equilibrium not before 12 to 18 months from now, so before that no one need to even think of an easing of prices.”

Turkmen adds, “Like many cities that were financed from oil wealth such as Houston or Ohio in the US, Dubai is facing problems to keep up with its rapid growth in terms of infrastructure and rising living expenses. Dubai will always be a costly city, but yet all these real estate projects announced will find buyers since the growth of the city won’t stop.”

Nicholas Maclean, Middle East managing director of the property advisor firm CB Richard Ellis, says “Most supply won’t hit the market before end 2008, so nothing will happen in the next few months.

Then the rents will be the first to be affected but we don’t assume very large decreases. Now we can already observe a small depreciation in the apartment sector, especially second buyers pay lesser.

The demand for villas is still high. Office spaces are mentally expensive, rents go by US$82 per sq ft these days - a level that is not sustainable.”

He adds, “There are now many overseas investors interested in commercial properties. These mainly European institutional buyers are keen to invest in those objects as investment opportunity, they try to rent out the offices to clients of international brands such as Emaar or Emirates, or to multinationals.”

Hart says, “Villas are currently the preferred type of property. Reason for that is not many villas have been developed, since developers make more money from selling a tower with a larger amount of flats than from selling a villa. The authorities however are now designating more land for villa developments. Villas are clearly the new trend with developers."

Atallah agrees, “This year we sold more villas than apartments, but both sectors are strong, it really depends on the location. Villas are obviously preferred by families, but apartments on the Sheikh Zayed Road are selling fast too. The Dubai Burj Downtown units are especially popular, since they are located in the middle of Sheikh Zayed Road. This project will be a trendy area for high-earning singles or newly married couples.”

“Overall there is strong demand for all products - the market is maturing so all categories are required. Last years we saw 8% economic growth, and this year will be even better, which will speed up the markets yet more,” he adds.

Turkmen states, “Since the market is now segmented and end-user driven we see that the commercial prices are skyrocketing compared to the residential ones. Office space supply is much lower, and there is tremendous demand. The rents of villas have generally declined by 6% compared to last year, which is definitely good news


for not only the tenants but the market in general, since it is a sign of maturity.

The residential market will be the fi rst one to slow down since supply will eventually catch up - so now most developers start to produce commercial projects.”

The property market seems to be so far booming, but can it withstand the latest slowdown of the equity market that struck the UAE and the Gulf region at large? “The losses in share values have two effects: First of all they reduce the general wealth of people and consequently their purchase power, but it also proves to many investors that property is a much safer investment class so it can actually increase sales. Overall I would say there is no direct correlation between the two since the property market is now end-user driven,” says Hart.

Turkmen also observes that the direct link ended. “Not long time ago there was a straight correlation between the equity and the real estate market. When real estate was up equities were down, and vice versa."

“It was a shallow market with little investment alternatives with unsophisticated, smaller investors that put their money into either one or the other asset. So after the stock market crash nine months ago, much of the money came back to real estate.”

“Most of these trades were done on paper- off plans sales. In summer this market fragment also slowed down together with the equities, so people realized that both markets are not necessarily interdependent,” he says.

“Today’s market is really dominated by end-user demand and supply, so we have different segments; villas, apartments, warehouses, offices, all performing differently according to customers’ needs.

From an investment prospective real estate assets are becoming more secure as the market matures. Investors should educate themselves and buy according to their long-term plans; are they looking for rental grow, a safe investment option or high resale value,” he adds.

Maclean says, “The drivers of the real estate and stock market are completely different, and have a different holding period. The cash that is written off the equity market does not necessarily flow into properties, but rather in funds or private equity.”

“Property is a long term safe investment, and here in the UAE it generally has good value and promising growth potential.” Atallah concludes, “The performance of the stock market does not affect Emaar, the prices of our share do not reflect the company’s performance. The prices of our properties are according to their market value and market needs, and they stand in no relation with our share.”

“We do have the interests of our shareholders in mind but this will show in the future. Those who buy shares now invest for the long-term.”

Mansour and his fellow Iraqis probably don’t care much about Emaar or other firms’ performances on the stock market.

They are looking for a new home away from terror and destruction - and with new real estate projects being announced almost every week in Dubai, it seems that they are at the right place at the right time.


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