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Character Building

Character Building

Enjoying the real estate boom and enduring the subsequent doom, the UAE’s property and construction industry is looking ahead for a new investment climate.

April 28, 2011 3:48 by

Abu Dhabi-based developer Aldar Properties has gained momentum after the government-owned investment arm Mubadala Development Co injected $5.2 billion in January this year. “We will continue to seek opportunities to capitalize on our existing land bank,’’ said Sami Asad, the chief executive officer of Aldar.

Aldar aims to boost its investment portfolio by delivering several projects including Al Raha Beach, Al Muneera, Al Zeina and developments at Yas Island in 2011, said Asad.

However, some grey areas remain in Dubai’s property sector. “Dubai continues to feel the pressure of excess supply, but we may have turned a corner with a modest pick-up in tenant activity over the past 12 months, which was backed up by a 17 percent rise in the number of new business licenses issued in the emirate during 2010,’’ said CB
Richard Ellis’ Green.

So all is not lost for Dubai in 2011, as lower-than-expected supply will help smooth out the property cycle in Dubai. “There will be an increased demand for office space in Dubai due to competitive prices and availability of good quality grade A office spaces,” said JLL’s Plumb.

About three million square feet of commercial space was leased in Dubai last year, and for Abu Dhabi the figure was 2.5 million sq ft in 2010, said the JLL report. Increased absorption of commercial space is likely to continue in 2011. “The average residential rent levels will continue to fall in Dubai and Abu Dhabi this year,” said JLL’s Plumb.

“But the rents at Dubai’s residential property market are likely to bottom out by the end of 2011.” The residential rents in Abu Dhabi will continue to decline until the first quarter of 2012, according to the JLL study.

“Tenants are exploiting the favorable conditions to move into higher specification properties in more desirable locations, and often at lower rents and with the benefit of further incentives,” said CB Richard Ellis’ Green.

Although property developers and buyers have become extra cautious, one of the major players is seeing good growth in the future.

Drake & Scull, which saw its turnover reach AED2 billion ($545 million) by end of 2010, estimates the turnover will increase by 50 percent in 2011, according to Tabari. “At the end of 2010, Drake & Scull’s backlog was $1.63 billion and it reached around $2.17 billion in February this year,’’ said Tabari. ‘‘This means the total turnover by the end of 2011 would be around $1.09 billion,” said the Drake & Scull executive. Drake & Scull’s figures are an indication that the property market is coming back on track, but the full-fledged recovery is yet to begin, as some sections of the construction sector are expected to perform better than others.

According to the JLL study, more than $45 billion of projects have been announced or are in the pipeline in the UAE, a country that boasts one of the highest levels of per capita transport infrastructure spending globally. Across the UAE, this investment will stimulate growth and will be a key driver for the market recovery in 2011.

Increasing investments in major transport infrastructure projects across the UAE will fill the development gaps and create demand for the real estate in the country, said the advisory firm. The major long-term investments such as the Union Railway, the Dubai
Metro, the Abu Dhabi Metro and the extensions of the UAE’s three international airports will further boost the construction sector, JLL added. Also, contrary to popular belief, the uncertainty factor due to the recent political turmoil in the region might end up
favoring the UAE market as a relatively stable investment option.

“The unrest that has unfolded across the region has only caused to underline the level of stability that has been achieved in the UAE,’’ said CB Richard Ellis’ Green. ‘‘This alone is an attraction for the corporations, and given the quality of infrastructure already in place, it is safe to assume that Dubai and Abu Dhabi will be on the short-list for any major new international companies eyeing the Middle East and North Africa region.”

Increased government spending in the Gulf region overall and higher oil prices will also benefit the property and construction sectors in the UAE.
“Some parts of the region have experienced political change in the first few months of the year, however, that will act as a powerful catalyst for enduring stability in the longer term,’’ said Damac’s Mcloughlin. “The Middle East accounts for nearly 60 percent of the world’s proven oil reserves, and as a result remains an extremely important region within the global context.’’
He added: “As oil-producing nations seek to diversify their economies, construction, infrastructure and property will continue to play a significant role in the advancement of investment and growth in the region.’’
Drake & Scull’s Tabari noted: “Our eyes are on the political situation in the Middle East and as the government spending has increased in the GCC, the sector won’t be affected negatively.’’
JLL, however, said it was too early to derive a trend from the recent political unrest, according to the firm’s regional director of the International Capital Group, Fadi Moussalli.
“The developments in the region are so recent that deriving a trend is a little bit early, but, of course, everybody is concerned with these events, not just the players in the property sector,’’ he said.
“High Net Worth Individuals from the region, who are prone to shift their capital to safe havens, might go ahead, but the sovereign funds will wait and watch before they make their moves.’’

Originally published in TRENDS

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