Harbor Real Estate Blog

09-Jun-2010 - Emirates Business 24-7

Issue of confidence must be addressed: report

The pace of recovery will be determined by the ability to instill confidence in property, says realtor.

Vacancies in single ownership buildings in the most sought-after locations are in relatively short supply in Dubai, says the Harbor report. (EB FILE )
While the degree of uncertainty surrounding the real estate industry will gradually dissipate, the pace of recovery will be largely determined by the ability to address the fundamental issue of confidence, according to a Harbour Real Estate report.

“The economy and real estate industry cannot recover unless those commercial enterprises, investors and individuals that will underpin and be central to the recovery have regained the confidence required to adopt the emirate as their preferred location for establishing a business or home,” Mohanad Alwadiya, Managing Director, Harbor Real Estate, said in the report.

Rebuilding and reshaping the economy will require time, which, unfortunately, suggests a long, painful yet inevitable recovery is ahead of us,” he said.
There are an estimated 50,000 residential units expected to be delivered onto the Dubai market by the end of 2011, which is down from previous estimates of 60,000 units, the report said.

“While this is good news for the industry as a whole, any number closer to zero would be better,” Alwadiya added. However, the issues facing the residential segment of the market, pale in comparison to the office segment. With an estimated 30 million sqft of space coming on stream in the next two years, the office segment of the industry is going to be hardest hit.

“Real estate brokers and owners today are facing the issue of prospective office tenants refusing to consider strata titled buildings, especially those which are situated in non-core locations,” the report said. With an average estimated reduction in office lease rates of 50 per cent over the last year, many existing tenants have been looking to relocate, partly because of their own downsizing efforts, but also to lower their operating costs and improve their business locale.

Vacancies in single ownership buildings in the most sought-after locations are in relatively short supply, particularly for some larger organisations who require multiple floors. The situation is expected to worsen as more strata-titled, non-core position office space is released onto the market, Harbor said.

Slow but positive growth

More affordable areas such as Discovery Gardens, Dubai Silicon Oasis and International City are expected to stabilise throughout the year as these projects are well established and already have a relatively secure tenant or owner-occupier base.

Slow yet positive growth can be expected in areas such as Dubai Marina, Emirates Living and Downtown Dubai. These areas are expected to witness a steady yet slow increase in prices towards the end of the year while areas like Jumeirah Lake Towers and Business Bay are expected to improve subject to the speed of progress in addressing infrastructure and service retail issues. Exclusive properties such as the Dubai International Financial Centre, Burj Khalifa, villas within the Palm and Al Barari are expected to continue to gain momentum because of superior locations, status and product offerings.

Correspondingly, rental prices will stabilise in the more developed and exclusive areas yet continue to slide down in areas not so well located or established, the report added.

“Pressure on rental yields will come from the sheer number of units which are released to the market during 2010, with investors and real estate brokers scrambling for tenants in order to generate whatever income they can,” said Alwadiya said

Need to curtail supply

Harbor believes that supply needs to be curtailed in the short term by either cancelling or rescheduling projects.

Developers will always be reluctant to cancel, as the financial implications, in most cases, will be significant. By choosing to delay they can buy time to address whatever issues they face while cancellation leaves no room for even partial returns on the project at hand.

There may be a significant proportion of projects “delayed” by developers, which will actually never be started. There are many projects which are up to 30 per cent unsold and which will probably face a 15–20 per cent buyer default rate. These projects will be very difficult to deliver, as finance from other sources is extremely difficult to procure and shortfall in investor funding would be crippling, the report said.

There are currently of 875 projects registered with the Real Estate Regulatory Agency. 685 projects have escrow accounts, while the rest are either more than 60 per cent complete or have total bank guarantees. The number of registered developers stands at 427,down from 800 registered more than a year ago. “While the cancellation of unviable projects is a positive initiative, the cancellation of 29 projects will do little to address the oversupply situation given the magnitude of the problem, the report said.

One initiative that has shown some promise and should be explored further is the practice of property consolidations and issuance of credit notes. Some developers have offered investors the option of consolidating investments on projects that have been completed in lieu of those that had been deferred. The practice has had some success and, in certain cases, has allowed developers to either cancel or delay projects without totally dissolving investor capital while allowing investors to realise returns on their investment a lot earlier. However, the practice of consolidation would have far more impact if it became a course of action recommended and supported by Rera.

Article from Kippreport

The emirate’s real estate sector can only pick up if Dubai’s population grows, says a new study. Transparency and better customer service are also essentials.

Dubai’s real estate market is facing a massive oversupply, and will need a quick growth in the emirate’s population in order to recover, according to the latest report released by property broker Harbor Real Estate.

“In 2010, oversupply will be an issue in the market. An estimated 60,000 residential units and 30 million square foot of office space are coming on stream by the end of 2011,” the report said, adding that Dubai Marina and Jumeirah Lakes Towers alone were expected to see around 10,200 new units in the next two years.
Dubai’s population declined between 5 percent and 8 percent in 2009; the city will need to see a growth in its population to increase property demand and “kick start the industry again,” the report said.

It’s also not going to be easy to attract existing investors. Demand last year was dampened by the lack of available credit and the tightening of lending rules by mortgage lenders. In 2010, investors are expected to be extremely cautious, the report said.

“Gone are the days of the easy sale to the investor. Simply put, many people have been hurt by the real estate price correction. In effect, they have developed a risk aversion, which will take some time to overcome,” it said.

One of the key things essential to increase the confidence of consumers in the market is to increase transparency, the report said. Currently, laws and regulations about disclosure are limited.

“Investors, especially those from overseas, need to feel that their rights will be protected and, in case a dispute arises, resolution will be equitable, accessible and timely,” the report said.

The timely release of economic data will also help people assess the feasibility of their intended investments.
“Buyers, particularly those with cash are the new kings. This year, real estate professionals will need to serve the customer and serve them well. The main drivers of buyer dissatisfaction have been in the areas of knowledge, consultative ability and empathy. This responsibility does not only lie with brokers but also with developers who must ensure that end-consumer needs are understood,” the report said.

Dubai’s authorities have already started taking measures to regulate the emirate’s property market. Most recently, Dubai’s Real Estate Regulatory Agency (Rera) said on Sunday that it has signed a new deal with the Ministry of Labor to officially recognize real estate brokers as a separate professional category. Labor cards and residency visas issued to brokers will now include their designation, instead of categorizing them as sales staff. The authority said that the move would help to remove bogus brokers from the market.

“This is the first step towards a complete classification of the real estate professions in Dubai,” Marwan bin Ghalita, CEO of RERA, said in a statement, adding that the move will promote “transparency and professionalism” in the property sector.

In 2009, Rera announced that property developers in Dubai will have to pay the complete land price before selling off-plan developments and will also need to inject at least 20 percent of the project’s value before beginning construction.

Late last year, the Dubai Land Department also said that it was planning to introduce a new law to protect the rights of property investors during the first quarter of 2010.

Article from Gulf Today

Dubai, January 10, 2010 – Harbor Real Estate, an integrated Real Estate Service Provider in Dubai, has announced the release of the latest edition of The Harbor Report which will dive into the” New Reality” and 2010 gist of the Real Estate industry in Dubai.

The “New Reality” examines various critical factors related to the Dubai economic recovery including the rejuvenation of the “Brand Dubai” and how Dubai is positioned, packaged and marketed to the world at large as a place to do business, inhabit or visit. Tourism is considered vital as investing in projects and programs that provide an experience of superior vale to international travellers will be one essential element for the recovery.

“Putting 2009 behind us will not be easy yet its imperative to put the year into context. The 2009 recession has taught governments, business institutions and individuals around the world valuable lessons. These lessons should provide a new depth of knowledge, experience and wisdom as we all look forward to the next decade” said Mohanad Alwadiya, Managing Director of Harbor Real Estate and Editor in Chief of the Harbor Report. “yet 2020 is still 10 years away and what we need to focus on now is the immediate future and what we call at Harbor ”The New Reality”.” Added Alwadiya.

Rapid population growth in Dubai will be the key to economic prosperity and will be determined by the success of growth strategies set by the government in the commercial, trade, tourism sectors. With a population that has declined significantly, anywhere between 5% and 8%, population growth will be the primary factor to stimulate the economy and rebooting the real estate industry again.

UAE GDP is also envisaged in the report to grow around 3% as infrastructural spending will continue to drive the economy funded by an oil price which will annualize at a price between $75 and $85 pbl.

“The Real Estate industry in Dubai will continue to be stressed as more projects are completed. The Dubai economy will be reliant upon other forms of revenue generating activities as the economic model of the emirate is re-configured in response to the new realities. ” Commented Alwadiya.

The report covers other elements considered vital such as the race for global capital, the issue of oversupply, the impact of mergers, rationalisations, consolidations, the role of RERA, creation of new relationships and the massive shift in market power.

In addition, the report announces the new partnership between Harbor Real Estate and Prestige and discusses Strata Law and the ongoing issue of service charges.

The 3rd edition of the Harbor Report can be downloaded on the Harbor Real Estate website. For more information about Harbor’s new communications and legal services please visit www.harbordubai.com