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Dubai's Destiny - Boom or bust ?

When the present ruler of Dubai (Sheikh Mohammed Rashid Al-Maktoum aged 58) was confronted with making decisions about Dubai’s skyline years ago, he decided bigger was better, and that looking back people would appreciate the bold brush strokes he used to paint the Dubai skyline. The dubai property market has been simmering steadily, and the iconic additions to the skyline fan the flames, as investors flock in hope of large tax less property returns. The Sheikh’s appetite for risk may have been formed from his experiences as a fighter pilot and horse racing enthusiast.

The Dubai Property Skyline

One of the key implementers of the property skyline has been Mohammed Alabbar, head of dubai property giant Emaar. Emaar has taken on the formidable task of building the worlds tallest building at a rate of a floor every three days.

Iconic Architecture

With Giant Palms Islands, Malls and Indoor Ski Slopes, the Dubai Emirate has a breathtaking array of property projects for the traveller to explore. Clichés abound to help describe the emirates renaissance in the region. A former oil producing dust bowl to a dynamic leisure and business hub on a visionary heading far beyond countries without billion dollar budgets.

Double digit growth

Double digit growth has allowed 95% of the economic activity to come from outside the oil sector. With no political instability Dubai is set to carry on its expansionist ideals well into the future, using the petrodollar bank account to supply the green commodity that will drive the vision into a very visible reality.

The side effects of such rapid expansion

One of Dubai's main arteries the Sheikh Zayed road is clogged as the cities expansion has overtaken the infrastructures planners slide rule traffic projections. The bean counters had under estimated the extent to which thousands of households following thousands of new jobs would lead to thousands of commuters.

So how does chairman of Dubai Inc see the future ?

Many have said Sheikh Mohammed's rule pivots on two fundamental rules: Firstly that his people will take part in the wealth creature and not just be passive passengers in the journey. Secondly the other to take the risks needed to propel Dubai into its new future. From the mega projects, free zones, finance for foreign companies to the freehold sale of property to foreigners. It has all led to a free enterprise atmosphere, cutting the bearacracy associated with central planning.

The fact that Dubai is the worlds biggest boomtown just at the moment is cause for any investor to take a good close look at the property market, but its far from the only one, here are few more

• Many believe that Dubai property is well below those of comparable cities around the world.
• Property prices are currently estimated to be c. 50% below real market value (compared to similar commercial hub cities with mature property markets such as Hong Kong, Singapore, Kuala Lumpur)
• 1,000sqft apt in downtown Singapore = GBP560,000.
• Comparable apt in Dubai (currently in v short supply) = GBP170,000.
• 1 bed apts in DSC just GBP115,000.
• Villa prices (per sq ft) increased by 31% in 2005.
• Apartment prices (per sq ft) increased by 10% in last six months (applies to occupied, not off-plan properties).
• Land prices are up 184% on this time last year.
• There is 53% less development land available than this time last year.

Sources: AME Info, Dubai Investment Boutique Housing Price Index, Construction Weekly Magazine and CBR Ellis

Dubai Property market rental demand
Rental rates increased by 38% in 2005.
New decree issued in 2005 to cap annual rate incs at 15%.
Cap does not apply to new rentals, or to new tenants.
Current market rental rates in Dubai c. GBP12.50 per sq ft.
A 475 sq ft studio in Dubai Sports City would yield an annual rent of c. GBP5,750 today = 10% rental return.
On completion in 2007 rental rates should have risen by another 25% - 50%, yielding GBP7,450 GBP8,450 per year, or a 12.7% - 14.8% rental return.

Dubai's construction is happening at a blistering pace. Dubai Holding's iconic Burj Al-Arab Dhow Sail shaped Hotel was one of the first iconic buildings to grace Dubai's skyline. However views from the top of Burj Al-Arab also illustrate that Dubai Holding's is not the only player reshaping the Dubai skyline. Nakheel's three Palm Islands have captured the World's real estate watchers imagination and caused a ripple of excitement that that helped act as the catalyst of the Dubai Real Estate boom.

A restaurant on the 27th floor of the same Hotel gives a breathtaking view of the 300 Islands being built 4km off the Dubai coastline, but before these are to complete, Emaar, the Emirates third largest player is due to complete Burj Dubai. It is set to complete in 2008 and stand 700 metres high, making it the tallest building in the World. The competitiveness between the three is being played out on a grand scale, and Nakheel has already announced the building of Al Burj, which will no doubt be higher still than Burj Dubai.

Lets dive in and look at the reasons Dubai has become such a hotbed for the global investor community. Dubai is positioning itself to be a worldwide contender in the tourism industry.

Dubai is one of seven emirates that make up the United Arab Emirates, and has 1,318 kilometres of coastline and a population of about 1.5 million.

Dubais growth of the last fifty years has been incredible. In the 1966, Dubai which was already a relatively wealthy trading centre discovered oil. The oil revenue led to accelerated economic and social reforms.

Tourism contributes to over 40% to Dubais economy, with 4.7 millions tourists in 2002, and projections of 15 million in 2010.

Dubai has sub tropical and arid climate. Winter temperatures are as low as 10 to highs of 50 degrees Centigrade in summer. The pace of economic growth in Dubai over the last 20 years has been incredible. Trade has grown 9% per annum over the last 10 years. With strong growth projected with the development of the following large scale projects:

Dubai Festival City
Dubai International Financial Centre
Dubai Flower Centre
Dubai Internet City
Dubai Marina
Dubai Silicon Oasis
The Dubai Mall
Burj Dubai
Dubai Healthcare City
Dubai Autodrome and Business Park
Dubai Humanitarian City
Dubai Investments Park
Dubai Media City
Dubailand
Dubai Maritime City
The Palm
The World

At present the three companies are working on combined projects of $100bn. Nakheel itself has $30bn worth of projects under construction. Emaar is the only one of the three listed on the stick market. Its share price consequently saw a 646% rise in a little over a year. Many say a Nakheel listing is inevitable. Many are asking about the sustainability of such development. Population growth is set to grow from 1.4m in 2005 to 5m by 2020.

Projects such as The World costing from 5.7bn to 22bn, and Dubailand have also been intended to capture the attention of the global media as well as the interest of international property investors. Dubailand covers 2 billion square feet, and comprises 6 sports zones. Few predicated a few years ago that Dubai would become a burgeoning middle east financial hub in the shape of the DIFC zone, as well as having one of the largest airlines.

Dubai has a hereditary monarch. The current ruler Sheikh Mohammed bin Rashid al-Maktoum. He was succeeded his late brother, and now performs the role of Vice President and Prime Minister of the UAE. Dubai has seen exceptional growth under the stewardship of Sheikh Mohammed , and hence has one of the worlds highest GDPs per head.

Visitor numbers doubling to 5.5m upto 2004 has fuelled property speculators, and the dubai property gravy train has roared ahead. This train has been partly fuelled by petro-dollars, as well as funds also finding their way into the stock market. The new property law will allow expats that have purchased new off plan homes to register them with the Dubai Land and Properties Department. The new law has been predicted to boost demand by allowing long term mortgages and has allowed conveyancing by International much easier, since it now sits within a legal formal frame work.

Another important underpinning to the Dubai market is that the three top players (Dubai Holdings, Nakheel and Emaar) will always be able to manipulate the supply side of the equation. The three and the government are intertwined and co-operation to avoid any property bubbles would be the most likely were the market to become hostile.

Like any market being slowly heated, a key is always at what point you are entering the market. Many believe Dubai has a long way to go yet, since the largest projects have yet to be build; mortgages are still not freely available; tourism has not yet peaked and the freehold law has only now been formally acknowledged, lastly the tax advantages are enough to make the average swiss banker wince no local income tax, capital gains tax , inheritance tax or stamp duty.

Costs of Construction Drives up Prices.
Across the Gulf States construction project management milestones are slipping. Residential, Office and Hotel projects are suffering delays due to shortages in labour and to a lesser extent materials. The Gulf, China and India are competing for construction raw materials, and this is feeding through to construction costs of estimates of 15% over the last two years. Expat workers labour on the large Gulf infrastructure projects, such as the Palm.

Arab GCC states 15th biggest economy.
The GCC states comprising: Bahrain, Kumwait, Oman,Qatar, Saudi Arabia, and the UAE, now have a combined GDP that would place them 15th amongst the world's largest economies. Many of these economies have doubled in the last five years.

Emaar's chairman gives his views on Dubai's Real Estate Sector.

Mohamed Alabbar is the chairman of Emaar, which is the largest listed real estate developer within the GCC states. Founded in 1997 it now has a capitalisation of $40bn. It developed the worlds tallest buillding the Burj Dubai. Emaar started with building themed onshore communities, many of which were aimed at the expat community.
A recent partnership with Italian designer Giorgio Armani to create the first Armani Hotel. It will offer 175 rooms within the Burj Dubai.

Dubai's new financial role

Dubai International Finance Centre has grown by by 15%, and has overtaken Luxembourg in the area of Islamic bonds. The six states of the GCC (Gulf Cooperative Council) have achieved double digit GDP growth. Making the GCC the fastest growing economy after China and India. An estimated $450bn of foreign assets have been added over 2006/7. A surplus of 30% of GDP is being invested and spent on domestic social and infrastructure projects. Dubai based banks are managing much of the petrodollar funds, which was not the case in previous oil price booms.

In order to attract international investment banks, Dubai's Financial Exchange opened, and soon after attracted Goldman Sachs, Lehman Brothers, Citigroup and Deutsche Bank. Morgan Stanley had sent 40 bankers to the region to absorb some of the business opportunities that were forming.
Such banks have also been instrumental in allowing Dubai International Captial (the governments investment vehicle) in buying Doncasters (the engineering group), Madame Tussauds, and Travelodge.

Dubai's Art Fair

Madinat Arena hosts art fair for contemporary art. Dubai hopes to host an international contemporary annual arts fair. Hoping the annual event will establish a regional arts market.

Emaar and Dubai Holding form closer ties

Emaar and iconic develop Dubai Holding (best known for the Burj Al-Arab) have formed closer ties by a shares for land swap. 28% of Emaar's shares have been swapped for land from the large land databank Dubai Holdings has. Dubai Holding is owned by Dubai's ruler, and now has a total stake of 51% in Emaar, and so the controlling share.

UK Islamic mortgages set to soar by 40%

The Islamic mortgage market is set to grow by 40% this year. This is likely to fuel purchases abroad such as within the dubai property market, where a large number of British muslims have been buying. Britain is the only country to offer the mortgage to date.

Dubai buys QE2 for £50 million as one of Dubai's star attractions.

The luxury passenger liner Queen Elizabeth 2 will be turned into a floating hotel off the Palm Jumeirah. The 40 year old liner was bought by Government backed Istithmar, and will be permanently berth the liner next November.

Dubai sees the QE2 as reflecting Dubai's status as a premier upscale destination. The QE2 is seen as another marketing coup, that will help raise an ever growing city profile.

Britons are now the largest group of tourists in Dubai at 6m, with an expat community of 1.4m.

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