- Published on Wednesday, 24 October 2012 19:46
- Written by Bloomberg News
DUBAI proclaimed its real estate comeback in the only style it knows: grandiose.
A replica of the Taj
Mahal about four times bigger than the original, a skyscraper with nine
swimming pools and a mile-long canal winding its way around office
buildings are among the high-profile projects unveiled in the past few
weeks.
The plans had been on hold since the financial crisis brought the emirate’s property boom to a halt in 2008.
The eye-catching
developments may be creating a buzz. In reality, few areas of Dubai are
showing signs of recovering from a slump that caused property values
across the emirate to fall by as much as 65 percent.
About a quarter of
Dubai’s residential properties are empty and an additional 25,000 are
due to be completed next year as developers fulfill contracts awarded
before the crash, Jones Lang LaSalle Inc. estimates.
“The market has
improved to some extent, but there isn’t enough to justify going ahead
with all the projects that are now being talked about,” said Craig
Plumb, head of research for the Middle East at the Chicago-based
property broker. “They should be phased over a longer period and should
be built in line with demand.”
About a third of the
office space in Dubai’s central business district is unoccupied and the
vacancy rate is much higher in other neighborhoods, Jones Lang said.
About 900,000 square meters will be added in 2013, according to the
firm. That’s about 13 percent of the existing space.
Mega projects
Some of the
developments announced earlier this month at Cityscape Global, Dubai’s
biggest annual property conference, were reminiscent of pre-crash
projects like Burj Khalifa, the world’s tallest tower, and an indoor ski
slope at the Mall of the Emirates.
Meydan City Corp., the
company that built Dubai’s 60,000-seat horseracing stadium and hotel
complex, said at Cityscape that it will revive a plan to create a
development featuring lagoons, canals and parks as well as a skyscraper
with pools and “sky gardens.”
The government also approved the construction of a canal that would connect the Business Bay area to the sea.
The Taj Arabia
complex, based on India’s 17th-century Taj Mahal mausoleum, will be
built by Link Global Ltd. for about 1.3 billion dirhams ($350 million),
the Dubai-based company said at the three-day trade fair. Chairman Arun
Mehra declined to say how Link Global would finance the construction of
the Taj Arabia, which will include a 300-room luxury hotel.
Abandoned plans
As those projects get a new lease of life, many more sit abandoned in the desert or in the Persian Gulf.
Taj Arabia was
designed to be part of the Falconcity of Wonders, a 41
million-square-foot complex of homes, offices, hotels and stores along
the Emirates Ring Road that links Dubai to the United Arab Emirates’ six
other sheikdoms.
That project,
featuring attractions including replicas of the Pyramids, the Great Wall
of China, the Eiffel tower and the leaning tower of Pisa, was derailed
by the collapse of the real-estate market.
Salem Al Moosa,
chairman of the Falconcity project, said underground work including
electricity, water and sewage infrastructure has been completed and the
company has sold parts of the site to developers that will realize the
company’s plans.
Of the three
palm-shaped artificial islands planned by Nakheel PJSC, only one—the
Palm Jumeirah—has been developed, with a combination of hotels and
residences. The World, a chain of islands off Dubai’s coast that look
like a world map, was created by Nakheel in 2008, though the archipelago
has yet to be developed. No one at the company was available to comment
on the project.
Dubailand project
In all, about $757
billion of projects were delayed or aborted in the UAE since the
collapse of Lehman Brothers International Inc. in 2008 sparked the
global financial crisis, Citigroup said in a report October 16. That’s
more than the projects that were canceled in Egypt, Iraq, Kuwait, Saudi
Arabia and Qatar combined, Citigroup said.
Dubailand, an
entertainment complex designed to be three times the size of Manhattan,
is another project that was put on hold. Dubai Properties Group didn’t
respond to questions seeking comment on the project.
Dubai’s real-estate
market is showing some signs of recovery after almost four years of
falling prices. The number of property transactions jumped by 50 percent
in the first half of 2012 compared with a year earlier, data from
Dubai’s Land Department show. The purchases, valued at 12 billion
dirhams, are still 74 percent less than the 46.5 billion dirhams of
sales in the first half of 2008. The Land Department doesn’t break down
its data into different types of real-estate.
Gyms, pools
So far, most of the
growth has been along Sheikh Zayed Road, the longest in the UAE, where
facilities such as gyms, pools and landscaped areas have been completed.
The biggest beneficiary has been Emaar Properties PJSC, whose
developments include the downtown area around its Burj Khalifa tower,
the world’s tallest building, and collections of prime single-family
homes known as villa communities such as Arabian Ranches.
Emirates Hills,
another villa development, as well as Downtown and Dubai Marina
accounted for most of this year’s property deals, data provided by
Dubai’s Land Department show.
The improving demand
“isn’t sustainable without steady population growth and job creation in
addition to a financing pick-up,” said Saud Masud, chief executive
officer of SM Advisory Group Llc., a New York-based investment firm.
“The oversupply issue will probably not be resolved for perhaps another
decade, but pockets of price stability may remain.”
Many buyers are
looking for a haven from the political turmoil that toppled leaders in
Tunisia, Egypt and Yemen, Jan Pawel Hasman, a Cairo-based analyst at
EFG-Hermes Holding SAE, said by phone on October 8.
“Most of the demand is
coming from Asia and India, where worries about the European crisis
didn’t leave investors many alternatives,” Hasman said. “The question
is: how sustainable is it?”
Prices of residential
properties in the best locations, such as the downtown area and the
marina, have risen about 15 percent this year. Villas, which account for
about 20 percent of the homes on the market, are in higher demand than
other type of residences, said Amer Khan, a fund manager at the
asset-management division of Shuaa Capital PSC.
“This demand is very different from what we saw four years ago,” Khan said. “This time it’s a lot more selective.”
Emaar, which sold more
than 500 serviced apartments in a tower near Burj Khalifa last month,
required buyers to pay 20 percent of the value before taking legal
ownership.
Debt burden
Dubai’s default risk
has dropped over the past three years as debt restructuring, bond
repayments and rising corporate profits boost confidence in its economic
rebound. Still, the emirate is weighed down by the $113 billion of debt
it racked up transforming itself into a tourism and commercial hub.
About $15 billion of
the debt matures this year, the International Monetary Fund estimated in
June. Abu Dhabi’s government and two of its banks as well as the UAE’s
central bank provided $20 billion to Dubai in 2009 to help state-owned
companies restructure debt.
Dubai’s property
market had one of the world’s biggest reversals following the global
credit crisis in 2008. Nakheel wrote down the value of its real estate
by $21 billion from late 2008 through mid-2010 and received an
$8.6-billion bailout from Dubai’s government, helping the company to
avoid default after cutting jobs and halted projects.
As emerging-market
economies from China to Brazil slow, the property market faces a risk
from the third major brake on expansion in five years.
“While a global
recovery may add liquidity and in theory support prices, there is still a
significant risk in the region, which may negatively impact direct
investment,” Masud said.
In Photo: Link Global Group said it will build the Taj Arabia complex that includes a 300 room hotel in a replica of the 17th century Indian palace that’s four times as big as the original. (Falcnocity of wonders via Bloomberg)
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