Middle East has reached a crucial stage with Dubai-based developer

After the high-profile announcements of recent years, the property market in the Middle East has reached a crucial stage with Dubai-based developer Nakheel announcing early deliveries to home owners of The Palm Jumeirah beachfront and Emaar’s 110-storey Burj Dubai.

The handover of the first phase of The Palm Jumeirah - the palm-shaped island reclaimed from the sea - includes around 1,500 villas and 2,500 apartments and began on schedule at the end of 2006. ‘Little more than five years ago Nakheel estimated that the first properties on The Palm Jumeirah would be completed by the end of 2006, and we have already delivered more than 750 properties to customers,’ said Chris O’Donnell, Nakheel’s chief executive.

‘The handover of more than 4,000 villas and apartments is a considerable logistical task, and it’s impossible to move everybody in at once, so there must be a controlled and phased programme.’

The Palm Jumeirah, slated as a residential, tourist and boating paradise, has attracted people from Chile to China, New York to Nepal, with more than 70 different nationalities set to move in, including several customers from Singapore, according to Mr O’Donnell.

‘The Asian market is absolutely key for Nakheel, and beyond the Indian sub-continent, we are particularly interested in attracting more investment from China, Malaysia, Singapore, Korea and Japan,’ he said.

In Qatar, the US$10 billion Pearl-Qatar offshore island construction work is in progress, although apartment handovers are running over a year behind schedule, according to reports. This 400-hectare island is now expected to be finished by 2010 and will house 40,000 residents in a Monaco-style setting.

Qatari Diar Real Estate Investment Co reported at end-February that it has sold all 46 plots in the Waterfront District of the Lusail project, one of the largest property developments in the region covering over 35 sq km and able of accommodate up to 200,000 people. Total sales value is reported to be around US$662 million.

Land transactions in the region’s leading real estate markets continue to be on the rise. Dubai Land Department reported real estate deals worth US$17.8 billion for 2006, up 88 per cent over 2005 - a new peak. Land purchases were up, too, with US$3 billion in commercial land sales, and US$1.2 billion in residential land sales.

Real estate transactions in Qatar between April 24 last year and Feb 7, 2007, reached US$4.9 billion. The total number of units sold was 4,558, while 133 plots of land changed hands. There were also 25 residential buildings and five shopping complexes sold, according to latest statistics.

The Kuwait real estate market was quite strong in 2006, with total value of sales hitting US$6.22 billion, up 18 per cent from 2005 - the strongest growth in four years, according to a National Bank of Kuwait report in January.

With ongoing deliveries scheduled this year, the question that comes to everyone’s mind is whether the Dubai market is heading for a significant correction next year. Or with the delivery of The Palm Jumeirah, whether there will be renewed enthusiasm in offshore residential projects. And, of course, in which direction investors are heading with their cash.

A joint study by Shuaa Capital and Colliers International claimed that 71,800 new units are to be handed over in 2007 and 43,000 in 2008, leading to a supply and demand shortfall that will soften the rental market by up to 25 per cent in some projects. Interestingly, the report suggested that only 4,000 new units actually hit the market in 2006, resulting in further pressure on rents and house prices.

Going by this report, it is expected that the impact of new supply on the Dubai real estate market this year will be sharper than that suggested by EFH Hermes which argued that supply delays would push back a serious over-supply into 2008. The Shuaa Capital and Colliers report suggested that even in 2009 there will be some 77,000 high-income units completed while demand is estimated at 36,000.

The UAE-based home finance lender Tamweel recently said construction delays could reduce by 18,000 the number of houses delivered to tenants this year. Tamweel had expected a handover of 54,000 units in 2007, with 36,000 expected to be delivered now, according to its CEO Adel Abdul Aziz Al Shirawi. The jury is still out on these predictions.

In Bahrain, the fundamentals are right to allow for strong and sustainable growth in the residential property market for the next five years at least, said Robin Williamson, managing director of DTZ Bahrain, a leading property firm in the Middle East.

He added that even those who take a more conservative approach to the market believe there is room for a strong price rise, with 30-35 per cent growth over the next two years a commonly cited possibility.

The property market in Bahrain has all the right factors in its favour for sustained price expansion for a minimum of three years, those in the industry suggest.

A foreigner wishing to buy freehold property in Bahrain can do so in a few specifically designated areas of Manama - Ahmed Al Fateh, Hoora, Bu Ghazal, and parts of northern Manama such as the Diplomatic Area. Since the declaration was ratified in 2003, the Seef district has seen huge property price gains of around 400 per cent.

Said Andrew Chambers, managing director of Asteco Property Services Company, the exclusive sales and marketing agency for Bahrain’s Marina West: ‘We expect more people to become aware of Bahrain’s real estate sector, its price advantages, its supportive legal framework and economic stability, as well as, of course, the inherent value presented by the Marina West community.’

Pre- and early sales have resulted in more than 10 per cent of the development being sold to buyers and investors from Bahrain and the Gulf Arab region including Saudi Arabia, and to expatriates from North America, Europe and Asia, Mr Chambers said.

Rhiannon Williamson, director of independent property publication Amberlamb, said that while demand for homes remained strong in Dubai, the area’s attraction in terms of property price appreciation had diminished since the early years. But she predicts long-term benefits.

‘Looking to the longer-term, Dubai is in a position to support a mature, well-rounded property market which will be of longer-term interest to investors rather than shorter-term interest for speculators,’ she said.

Independent estimates suggest pricing has also gone up with some developments, including The Palm Jumeirah and The Pearl Qatar, registering a premium of 100 per cent since launch while the Jumeirah Beach Residence has increased by 65 per cent. The cost of a villa on The Pearl is still one-third less than the recent sale price of Nakheel’s Jumeirah Park villas in Dubai. This indicates that the rising cost of construction is underpinning the high prices seen over the last two years.

According to Mr O’Donnell, The Palm Jumeirah was an immediate success as a real estate product; when villas went on sale in 2002 they sold out in just 72 hours.

‘Since then The Palm Jumeirah has proved to have been an unparalleled investment with average premiums of 70-120 per cent; incredibly, some of these properties have achieved a premium of 300 per cent. I believe this is a ringing endorsement by the market of the quality of product that is being delivered,’ he added.

Dubai-based Richville Advisory Group recently gave an overall view of the sector in this way: ‘We expect the population of Dubai to grow to 2.5 million by 2010, leading to an additional demand on residential units by around 480,000.‘

The expected projects scheduled for completion by 2010 do not exceed 500,000 residential units,’ the group pointed out.

In Saudi Arabia, initial work is underway on the US$26.7 billion King Abdullah Economic City on the Red Sea development, one of six such city projects so far unveiled. When the new cities are up and running in the next 15 years they are estimated to have a total population of 4.5 million and generate income of US$150 billion.

Brad Bourland, chief economist of Saudi American Bank Financial Group, believes they will be viable. ‘There will not be any white elephants built in the desert. Decisions will be driven by businessmen,’ he said.

Source: The Business Times, 10 April 2007