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Thu 1 Dec 2011 12:15 PM

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UAE National Day: northern lights

While Dubai and Abu Dhabi have stormed ahead, their northern neighbours are playing catch-up

UAE National Day: northern lights
Abu Dhabi has pledged to spend $1.6bn to aid the UAEs poorer emirates, such as Ajman
UAE National Day: northern lights
Abu Dhabi has pledged to spend $1.6bn to aid the UAEs poorer emirates, such as Sharjah
UAE National Day: northern lights
RAKs real estate market has benefitted due to its distance from Dubai

The movie Sea Shadow is a new coming-of-age drama about a 16 year-old teenage Emirati boy called Mansoor as he grows up in a poor village. Launched in the glamorous French Riviera at the Cannes Film Festival last year, the film is set in the coastal towns around the northern emirate of Ras Al Khaimah and was the first Emirati production financed by Image Nation, Abu Dhabi’s state-backed film production company.

Image Nation previously focused on co-financing multi-million-dollar Hollywood blockbusters staring big names like as Matt Damon, Richard Gere, Mel Gibson and Nicolas Cage.

As the UAE celebrates its 40th anniversary, the focus on promoting local talent across the region is a clear example of how Abu Dhabi’s oil wealth can be used to showcase some of the poorer and less well-developed parts of the union.

Ras Al Khaimah (RAK) is already looking to capitalise on this opportunity and its government has set up a new company to support the emirate's growing hospitality sector. Ras Al Khaimah Hospitality Group acts as a management company on behalf of the government owned hotels, hospitality, tourism and leisure assets.

The government hopes the new vehicle can accelerate the development of hotel projects to achieve the target of having 10,000 hotel rooms in the emirate by 2016.

To help achieve this, the RAK government also announced this summer it plans to plough $100m into hotel and tourism projects over the next four years in a bid to quadruple its number of visitors.

"Ras Al Khaimah is fast becoming a strong contender within the global hospitality market and this company will be taking an active role in introducing new hospitality projects," says Victor Louis, CEO of Ras Al Khaimah Hospitality Group.

“The northern emirates are not oil-based. RAK's economy is a combination of industry and tourism… RAK also has some of the best hotels in the UAE which include Hilton Beach Resort, The Cove and Al Hamra Fort Hotel; in 2012 the world renowned Waldorf Astoria Palace Hotel will also be opening,” adds Abid Aziz, residential consultant for the Northern Emirates at real estate agency Better Homes.

With hotel projects up and running, the RAK economy is also performing well and is set to grow ten percent this year. RAKBANK, its national lender, saw profits rise by nearly a quarter in the first nine months of 2011 and it regularly tops the polls for the best customer service in the UAE.

While it may only account for around 1.5 percent of the UAE’s GDP, RAK’s ruler, HH Sheikh Saud bin Saqr Al Qasimi, believes the emirate can compete with its wealthier and more developed neighbours.

"Here, what we really promote is zero corruption,” he says. “I have seen the world, and it's not about business laws, but the practice of business laws… If we look at the whole of the emirates as such, [RAK] has a fantastic geographical location.

“We have a very liberal policy towards the transfer of money, a very liberal policy in terms of bringing in talent and labour, you have a fantastic centre for education and healthcare, [as well as] roads, ports, airports,” he claims.

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In a bid to attract more business, RAK launched the AED520m ($141.5m) Maritime City free zone in May, which will enable businesses to operate directly out of a dedicated port.

Like Dubai, RAK has seen some glamorous projects shelved as a result of the downturn, such as the AED3bn ($817m) Boris Becker Beach Resort & Tennis Academy and resort launched by the three-time Wimbledon tennis champion in 2008.

However, RAK has benefitted from being further away from Dubai or Abu Dhabi, unlike neighbouring emirates Ajman and Sharjah, which have been caught up in Dubai’s turbulent property market.

Many residents, unable to afford Dubai’s higher rental levels, lived in Sharjah or Ajman and commuted to work. This led to a mini boom in the northern emirates. However, as the downturn hit Dubai, prices dropped by up to 60 percent and around half of projects stalled. Workers were now able to afford to live in Dubai and began to migrate closer to work and investors soon followed suit.

“Around 40 percent of active investors have decided to transfer their investments from off-plan projects to others under construction or completed projects,” says Yafea Eid Al Faraj, the executive director of Ajman Real Estate Regulatory Agency (ARRA).

Scores of investors in Ajman’s real estate industry were hit when the emirate’s offplan market collapsed in late-2008, sending house prices tumbling. In the $15bn Emirates City development alone, more than a dozen projects are now on hold, which is affecting hundreds of buyers.

ARRA pledged in September to publish a list of the emirate’s scrapped real estate projects by early 2012. The move could clear the path for buyers to pursue court action against the developers or attempt to secure a refund against their initial investment.

The problem now facing Ajman is that some investors have taken the option to move to developments in Dubai or Abu Dhabi, which are seen are more mature markets.

Sharjah, which is even closer to Dubai than Ajman, saw rental rates decline by an average of five percent in the third quarter of this year, as lower demand and tenants relocating to newer buildings with better facilities took their toll.

"With a combination of summer holidays and Ramadan which culminated in low demand putting pressure on landlords, tenants relocated for better rents and/or terms, causing apartment leasing rates in Sharjah to fall,” indicates Elaine Jones, CEO of real estate consultancy Asteco Property Management.

The ripple effect of relocation and affordability also prompted tenant migration to the neighbouring emirate of Dubai, she says, adding that this trend was consistent with the decline in rental rates in certain areas of Dubai.

In the other northern emirates of Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain, overall rates remained stable, Asteco report. However, it forecast that rental rates, particularly in Fujairah and Ras Al Khaimah, will come under renewed pressure as new residential developments are now in the process of being handed over.

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Despite the migration, Sharjah, which is known as the cultural emirate, has still remained popular with long term residents and Lesley Preston, a Sharjah-based real estate agent from Better Homes, says occupancy levels in its developments are in the high 90s percentile.

Further up the coast is the emirate of Fujairah, which is seeing its own boom at the moment. It is set to see the launch of the UAE's first domestic-service airline later this year it is also set to launch the $109m Fujairah City Centre shopping mall in the spring.

UAE telecoms firm du also set up a 60-strong customer care unit staffed wholly by Emiratis and it chose Fujairah as the location for its base.

Like RAK, Fujairah is a strong tourist attraction and Cormelia Erharde, general manager of Radisson Blu Resort Fujairah says the area is popular with Russians and German tourists who want a less hectic holiday than Dubai.

While the emirates enjoy strong unity as they approach their 40th milestone, some issues do exist between them, mainly power. Dubai's power demand alone accounts for nearly half of the UAE's supplies and its use of precious electricity can leave the northern emirates, which receive supplies after Dubai and Abu Dhabi, in the dark.

Residents in Sharjah and Ras Al Khaimah are no strangers to blackouts. In 2009, residents had to rent hotel rooms or drive to relatives' homes to escape the suffocating heat after power went off for many hours a day.

A series of mid-June power cuts in Khor Fakkan, in Sharjah - which is home to a major container terminal - and fears were raised this summer about yet another power problem, especially when oil supplies began running low at the petrol pumps.

"There's not enough planning in the northern emirates on how they'll get the power for their industrial development," says Robin Mills, a Dubai-based energy economist.

The UAE, the world's third-largest oil exporter, does indeed have many evident economic disparities and the gap between the rich and poor has not gone unnoticed. As a result, the UAE has pledged to spend $1.6 billion in the northern emirates – which also include Umm Al Quwain, the least populated emirate – which have long relied on richer Dubai and Abu Dhabi.

The UN Development Programme (UNDP) had hoped to get $15m from the UAE government and $1 million from other parties to support its 2007-2011 development programme for the emirates, which focused on environment, social and economic development, empowerment of women, and HIV/AIDS. However, Elissar Sarrouh, UNDP resident representative says the UNDP has so far received only half of that amount.

"One of the focus areas of UNDP in the UAE is bridging the regional disparities gap and focus on sustainable human development and poverty reduction in the northern emirates… We hope that the rest of the funds will be allocated to UNDP in order to develop new programs and initiatives under the current programme priorities," Sarrouh says.

“They want to be treated on the same level as the other emirates and not economic backwaters... The Federal Center is giving more monies to the northern emirates to begin to plug infrastructure and social gaps. These efforts take time,” says Theodore Karasik, director of research at Dubai’s Institute for Near East and Gulf Military Analysis (INEGMA).

“Abu Dhabi, as the Federal Center, helps to finance the rest of the UAE as is its duty,” he adds.