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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

During the UAE’s construction and property boom, the flipping game was played and perfected by a large number of small and big investors. The ‘‘pass-the-parcel’’sport turned deadly when the downturn hit the UAE and in no time the ‘‘prized parcel’’ turned into a ticking time bomb. The ones who were holding the parcel last, got burned in the game. Currently, the UAE property market is gradually gathering steam, but the flipping games won’t make a comeback any time soon.

“Two major trends have emerged in the UAE property sector after the financial crisis: the flipping of property has stopped, because there is no money in the market, and there is an emphasis on the sustainability of the real estate developments,” said Khaldoun Tabari, vice-chairman and chief executive officer of Dubai-based contractor Drake & Scull International.

“The flipping will not return for the foreseeable future and the people are now more inclined toward properties that take into account the efficient use of water, electricity and cooling systems.’’

The focus now is on long-term investments versus the pre-crisis trend for short-term profit, according to Niall Mcloughlin, senior vice-president at Dubai-based real estate firm Damac Holding.

“Dubai’s property market has undergone a significant transformation in the past two years,’’ said Mcloughlin. “The days of flipping properties for a quick profit are over, and investors need to realign their strategies with the view that property is a mid- to long-term investment.’’

The construction trend in the UAE is overall veering toward smaller projects that are community focused, according to Craig Plumb, head of research at real estate advisory Jones Lang LaSalle (JLL).
“The era of super-large shopping malls has ended because there is already an oversupply of large malls,’’ explained Plumb. “In 2011 and beyond, smaller community centers will replace the big malls, not only in Dubai and Abu Dhabi, but in other emirates as well. Even though there is a growing investor interest in the UAE real estate market, the shortage of investment grade properties at realistic prices will continue to constrain transaction
activity in 2011.”

He added that the light industrial and logistics segment would be the best
performing sector in the UAE construction and property market.

In a study on the property industry, JLL said the UAE would benefit from the completed transport infrastructure and there will be an increased harmony between Dubai and Abu Dhabi.

The $11 billion Union Railway project, which will connect all the emirates, is likely to boost the real estate sector in the UAE
because of the increased connectivity, it said, adding that the market will also benefit from the announced investments of $1.6 billion in the Northern Emirates.

Greater integration between the emirates will lead to economic stability, job growth, and will benefit the real estate markets across the UAE and increase the attractiveness of the UAE in the near future, according to JLL.

However, all is not well with the property sector as the private developers are still battling with liquidity problems.

“The lack of liquidity at both developer and retail levels remain the biggest challenge for the UAE property market,’’ said Mathew Green, head of research and consultancy at advisory CB
Richard Ellis Middle East. ‘‘The banks remain risk averse in their lending activities.” The slowdown in lending activity in Dubai has forced several property developers, including Drake & Scull, to turn to Abu Dhabi.

“The construction sector was hit by the downturn in Dubai and as a result the lending activity came to a halt. The developers in Dubai have stopped building, so we had to move to Abu Dhabi,” said Drake & Scull’s Tabari.

“The UAE capital has oil wealth and we are looking at the Abu Dhabi market to sustain our revenues, but Dubai will always remain the trading hub due to its infrastructure, which is second to none,” he said. The construction sector in Dubai is likely to remain under pressure for the next four to five years, he added.

CB Richard Ellis’ Green is also quite upbeat about the UAE capital. “Abu Dhabi is already seeing a return of positive sentiment. Despite some financial challenges for local developers, including Aldar, there is a sense that 2011 will be a year of real movement in the UAE capital both from a performance and regulatory standpoint,’’ he said.

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