To get a true picture of the sector's health, it is helpful to ask how the developers formulate their decisions
It doesn’t take long at a dinner party these days for a Dubai veteran to cite the number of “To Let” signs on buildings around the city as proof that there is an exodus of expats from the UAE.
On such occasions I respectfully note that the correlation is not so obvious, and that there was a 3.5 percent rise in the population to 3.08 million in the first half of 2018 according to official data. The usual response to this is: “Ah yes, but all the families are leaving”. To which I’ll cite the latest KHDA figures which show a rise in the number of pupils enrolled in private schools from 273,599 in 2016/17 to 281,432 in 2017/18.
That’s not to suggest, as I wrote in a recent column, that it’s all roses in the garden at the moment. Average Dubai property prices are 20 percent below their mid-2014 peak values, according to ValuStrat data. And although the IMF estimates that Dubai’s GDP will rise over three percent this year, the business environment is tough in many sectors, with more competition from around the region. We are hovering around the low point of a cycle due to a range of factors, not least the low price of oil in recent years.
But the key word here is “cycle”. Economies run in peaks and troughs, and to understand what is happening we have to hone in on the actual data and not just anecdotal evidence. And we must also zoom out to see the bigger picture.
Which brings us to our cover story. Successful real estate developers do not make decisions based on short-term indicators; they make educated forecasts about where the economy will be in five, ten or even 20 years’ time. Given the timescales on their projects are at least five years from conception to delivery, there is simply no other way to plan.
Consider Emaar’s Mohamed Alabbar: is he building his Creek Harbour development, which includes a tower taller than Burj Khalifa and a mall with almost twice the leasable space of Dubai Mall, based on current demand, or even the supposed “Expo effect”? Of course not. His vision is much bigger than that, as demonstrated by news that Creek Harbour will host the Middle East’s biggest Chinatown. This makes total sense given that 550 million people in China will be considered middle class by 2022, according to a study by McKinsey & Company.
Add to this India’s middle class, which is forecast to grow from 50 million in 2010 to 475 million by 2030, and that’s a vast amount of potential customers for homes, hotels and shops.
Consider, too, that the population of Dubai is expected to double by 2027 and then ask if it is any wonder that mega-developments are rising from the ground throughout the city. These developers have done their homework.
To return to the present, those tighter margins do have an effect in other ways. As Nicholas Maclean, managing director of CBRE, told me last week, a competitive environment is forcing developers to be more creative in their offerings, and also more diligent in respect to build quality and maintenance.
At the affordable end of the market you see more realistic pricing and greater flexibility over deferred payment plans. Further up the chain there is a growing emphasis on lifestyle in a meaningful sense. For instance, Majid Al Futtaim’s $3.8bn Tilal Al Ghaf community will be set around a 70,000 sqm swimming lagoon. The Sustainable City has been built with the environment and wellbeing at its core. Azizi’s Meydan projects, Riviera and Victoria, have been master-planned to emphasise parks, waterways and community spaces.
This all adds up to more flexibility and choice for consumers than ever before. And if developers don’t deliver on those promises they will be punished for it. This is a market with almost unlimited potential, but it is also maturing to the point where mistakes will no longer go unnoticed as was perhaps once the case.
Which all adds up to a largely positive story... as boring as that may sound for the dinner party gossips.