By Shane McGinley
Dogged by false rumours that it is sinking, developers of various islands say they are pushing ahead.
The man-made development off Dubai's coast has been dogged by false rumours it is sinking, but developers of various European-themed islands are pushing ahead with plans in a bid to take advantage of the slump in construction costs.
A few days before our meeting, josef Kleindienst, CEO of the Kleindienst Group, took a boat out to survey the six islands his company is developing on ‘The World' off the Dubai coast. "The islands are still there. These islands will never go away and will never sink.
There must be something wrong with these stories," he says laughing in a thick Austrian accent. He is of course referring to reports in the British press that claimed the islands were sinking and rapidly merging together.
The World, an archipelago of 300 man-made islands built in the shape of a map of the world, is located 4km off the Dubai coast and has been the focus of some colourful tabloid reporting in recent weeks.
Last month, the Dubai government's media office officially dismissed reports originating in the UK that Dubai's Ruler HH Sheikh Mohammad Bin Rashid Al Maktoum had offered British singer-turned-designer Victoria Beckham over $40m to design a fashion hotel on one of the islands.
However, reports that the islands are sinking were taken altogether more seriously and Nakheel, the project's master developer, quickly issued a statement refuting the reports as "wholly inaccurate" and "completely incorrect."
Rahail Aslan, whose company is developing the islands of France and Spain, told Arabian Business that the reports were "ridiculous" and that an independent study of the structural integrity of the islands had shown that "everything is in order and intact."
Kleindienst's company has also carried out engineering studies of the islands it has purchased from Nakheel and he points out that various engineering and compacting procedures will see the sand settle by around a metre once the particles have been locked together into place.
"Following the studies conducted, we now know exactly how to sustainably manage and maintain the resort shoreline of our islands so that the impact of nature is controlled. The bottom line is the sooner we build and maintain our islands the better," says Kleindienst.
Construction is something which both developers are eager to push ahead with and in the next few years the European segment of The World development will begin to take shape. Kleindienst says he is within days of signing a deal with a contractor and Aslan is currently negotiating with four main contractors and will finalise talks by the middle of this year.
Construction on France and Spain, collectively known as Aquitania, is due to start in the third quarter of this year and Aslan admits that the design has been amended to reflect the changing conditions in the Dubai real estate market.
"We have reduced the density [of properties] and made it more attractive," he says. "It previously had quite a number of units on the project but we have probably reduced it by I would say 40 percent, which means there is much more landscaped areas. The buildings are not as dense, apartments are getting better views and it has even made it easier on the utilities."
He believes the downturn has actually come as "a blessing in disguise" as now the islands' developers are able to negotiate better terms and conditions from contractors and take advantage of the drop in construction rates, which he says have slumped by nearly 50 percent from the boom years.
"I am not talking just on The World I am talking about everywhere. We have just awarded a contract in Dubai Marina for ground plus 34 [floors] and it is 50 percent cheaper than it was maybe fourteen months ago," says Aslan.
Kleindienst says the drop in rates on The World has been even steeper, simply because contractors had previously no incentive to work offshore because they had so much work onshore and therefore were quoting extremely high rates for their services.
"Before the crisis, construction companies didn't even want to go out and touch these islands for below AED2,000 per sq ft. Now we can have the same work for AED500 per sq ft," he points out.
The developers are eager to take advantage of the current drop in construction costs as development of The World islands will be logistically more demanding and likely more time consuming.
"You have [to] travel by barges to deliver your material and [then] construct the same way you do on normal land. It would possibly take an extra eighteen months to do a development offshore," Aslan explains.
The individual units will also be constructed onshore, shipped out to sea and put in place on the islands. This is not dissimilar to how whole hotel room pods and bathrooms are sometimes manufactured off site and inserted directly into the buildings.
The timing might now be good to sign construction deals in Dubai but Kleindienst felt the effects of bad timing when the Dubai debt crisis erupted just weeks before the December launch of its ‘Heart of Europe', development, which will span across its six islands on The World.
The World's master developer Nakheel was the subject of global scrutiny when its parent company Dubai World announced on November 25 that it would seek to delay its debt repayments, amid fears Nakheel would default on a $4.1bn Islamic bond.Abu Dhabi eventually issued a $10bn bond to support Dubai World's debts, however the events did negatively impact Nakheel's reputation and the recent FutureBrand Gulf Real Estate Study found that its brand image has continued to decline.
These concerns are not shared by the island owners and developers on The World as they say Nakheel has already completed its obligations as master developer.
"Nakheel has done [its] job and there is no more work for Nakheel to do out there," says Kleindienst. Aslan also adds that Select Group has almost completed payment of the two islands that are part of Aquitania and is responsible for the development of the two islands.
Launched in 2008, the AED5.5bn Aquitania project entails the islands of France and Spain. It will have a number of different areas, which will be named after Monaco, Cannes, St Tropez, Marbella, Barcelona and Madrid. Aslan forecasts that the project will start construction in the third quarter of 2010 and will take three and a half years to complete.
Kleindienst originally purchased eight islands for the ‘Heart of Europe' project, but decided to merge three of these into one large city centre style complex. Four of the islands will have villas and the fifth will contain retail and office elements.
The entire project is spread over the islands of Germany, Austria, Switzerland, Netherlands, St Petersburg and Sweden and, similar to Aquitania, there will be six themed areas named after the European destinations of Belgium, Geneva, Luxembourg, Monte Carlo, Poland and Sochi.
Showing that Dubai developers have not lost their ambitious streak, Kleindienst says the project will include "climate controlled boulevards," whereby German technology will be used to make sure the temperature on the boulevards will be less than 30o C at all times, even during the summer months.
Kleindienst began working on the innovative concept two years ago and appointed research and development specialists at the renowned Fraunhofer Institute in Germany to design the cooling system to be as environmentally sustainable as possible. Construction work is expected to begin on Germany in the first quarter of this year, says Kleindienst. Phase one is due to be ready next year and the entire project is forecast to be complete by 2015.
He reports that he has set aside AED3.1bn for the project and the company will use its own money until 2012, after which it will seek fresh funding.
So why is he so confident of the project's success? According to Kleindienst, while there is an oversupply of residential villas and townhouses in Dubai, there is a lack of holiday home developments dedicated specifically to the needs of tourists.
"Would you go [on holiday] to a residential area?" he asks. "Your neighbours would be going to the office in the morning... then you want to enjoy the pool but nobody is there as they are in the office and in the evenings you want to party and they ask you to be quiet as they want to sleep."
He reports that this perceived lack of holiday homes has generated a lot of interest. He says prices have risen three times since the project's official launch in December and are around 50 percent more expensive, although he does admit that the prices did start from a low base to reflect the sentiment in the market at the end of last year.
The majority of buyers have been European and prices have ranged from AED6.5m for a three-bed villa to a top level of AED20m.
While the market in Dubai has seen prices drop by 60 percent since the boom and the emirate is likely to see a glut of residential units coming onto the market this year, Kleindienst believes there is a genuine shortage in the region's holiday homes segment.
"It is a question of supply and demand. I could decide to build offices or residential buildings but I don't as I don't see demand. On the islands there is a different situation. There are no holiday homes in Dubai at the moment or vacation homes," he says. He adds that this gap in the market was identified by Nakheel and this is the reason that the project was first conceived in 2003.
He sees Florida as the main competition to Dubai as the US state is the biggest market where Germans buy holiday homes and around 200,000 of them have bought there.
In 2010, 60,000 Germans are expected to purchase holiday homes this year and Kleindienst is aiming to persuade a large slice of these to buy in Dubai. He says the summer sun, the retail outlets, the golf courses and the shorter time difference and flying distance as the main incentives for German buyers.
However, Aslan says Select Group is not actively chasing sales for Aquitania and he is more pessimistic about the current state of the market.
"We are not trying to make any sales at the minute. I think the market and environment is not the right time, there is no confidence really there. Therefore we are not even attempting to make any sales.
"It is not about the development... there is no money around and those who do have money are keeping it firmly sat in the bank and are not spending it. However, construction costs are very attractive at the moment and we will be taking full advantage of that," says Aslan.
However, he believes this is just a cyclical trend and that the market will improve and the company will then begin actively chasing sales.
"It has been difficult but it is bound to improve in the coming twelve months. To attract buyers nowadays you need to have some relatively good progress onsite. Within I'd say twelve to fourteen months from now we will have a show home and apartment ready onsite. Then we will do some aggressive marketing," adds Aslan.
Members of the public will soon be able to witness the development take hold, as Kleindienst says he knows that Dubai's Roads and Transport Authority is planning water taxis and tours out to the islands as they have bought eleven ferries that can transport 100 people at a time and are planning to start operating them this year.
At least then when the next sinking reports surface in the global press we can check how true they are for ourselves.