Learning from the recent past in developing the future vision for Dubai

Given the number of major real estate announcements over the past few weeks, one could be forgiven for thinking that we were back in 2006 and 2007 again.

There are clear signs that the Dubai economy is recovering on the back of the 3T’s of trade, transport and tourism, with the Dubai Statistics Centre releasing new figures that show real GDP growth of 4.1% over the first half of 2012 (the fastest growth rate since early 2008). Encouragingly, there are also indications that some of the lessons of the last real estate crisis have been learned. The most important of these is the need to adopt a long term and co-ordinated approach, rather than developing too much real estate too quickly. Providing this proves to be the case, then the recent announcements can be seen as a positive for the market in the long term.

Additional reading:

• New mega project announced in Dubai: Mohammed Bin Rashid City;
• Emaar launches new premium ‘CASA’ villa community;
• 4th phase of Madinat Jumeirah may be completed by 2015

Indications of the change in tone and temperament include a greater degree of co-ordination between developers; adherence to the recently approved Strategic Planning framework for Dubai; more emphasis on phasing with most developers recognising that major developments will need to be built over a much longer timeframe of between 10 to 20 years, and lastly a recognition that major demand generators need to be developed ahead of other components of mixed use projects. It is now recognised that attractions and anchor tenants must be developed first, in order to generate demand for other components of the project.

Another factor to consider is that not all of the announced projects are likely to attract funding. Banks remain wary about lending to real estate developments at a time when they still have to make major provisions against nonperforming real estate loans from the last development boom. Our soon to be released 2012 Real Estate Investor Sentiment Survey (REISS) shows that investors also remain cautious, preferring completed income producing projects than development plays or land. Given the understandable reluctance to rely so heavily on ‘off plan’ sales as in 2007/8, the level of available finance is likely to act as a natural anchor, limiting the number and timing of the announced projects that proceed.

Commenting further, Alan Robertson, CEO of Jones Lang LaSalle MENA said: “We are definitely seeing a return in confidence to the Dubai real estate market. This is still Dubai and it’s as ambitious as ever but we are also seeing a more mature and considered approach which is only going to benefit the long term health and credibility of the real estate sector amongst domestic and international investors and stakeholders. The key to the success of individual projects and the future performance of the overall market will be the adoption of a realistic phasing strategy in line with market demand.”