Property developers in Dubai could be once again building more homes than the market can support, a new report by CBRE has suggested.
CBRE researchers estimate that developers in Dubai will complete about 17,000 new homes – most of which will be built in mega schemes on the outskirts of the emirate – this year, while another 65,000 homes are planned to be completed over the next four years.
The agent said that most new homes would be built in “secondary locations” such as Dubailand, Jumeirah Village Circle and Silicon Oasis.
The news comes in a week when the developers Emaar, Dubai Properties and Lootah Real Estate have announced the launch of 845 new homes on the outskirts of Dubai, prompted by rising house prices and rents.
“The residential development pipeline is again starting to swell, with an ever-increasing number of new projects being launched. While this pipeline is still far smaller than witnessed during the last cycle, it is nonetheless something to monitor carefully in the coming years, with a danger that further down the line supply could again start to exceed demand fundamentals,” said Matthew Green, the head of research in CBRE’s Dubai office.
With house prices and rents continuing to rise, more and more developers are making the decision to start work catering to what appears to be an undersupplied and highly lucrative market.
CBRE estimated that average housing rents in Dubai increased 2.8 per cent in the three months to the end of March, with apartments rising by 3 per cent and villas by 2.6 per cent.
The strongest sub-markets for apartments were Sports City, Downtown Dubai, JBR, International City and Dubai Silicon Oasis.
The report echoed recent findings from CBRE’s rival agent, Asteco, which found that average annual apartment rents increased by 5 per cent over the three months to the end of March while villa rents rose 3 per cent.
The increases mean that rents are on average now 22 per cent higher than they were a year ago, CBRE estimated.
The rising cost of living in the emirate is now starting to become a real concern for many residents, with rentals having risen by an average of 45 per cent during the past two years,” Mr Green said.
“With sustained demand for both occupational and investment properties, we anticipate that residential rental and sales growth will continue throughout 2014. However, we expect growth levels to be lower than 2013 performance as affordability becomes a more influential driver of property moves. We expect to see an increase in the flight to affordability, with occupiers starting to consider Sharjah and the Northern Emirates as a cost-sensitive alternative to Dubai,” he added.
The news comes as new government statistics revealed that the cost of living in the emirates had hit a new post-2009 high last month, driven by rocketing rents.
According to the National Bureau of Statistics, the average UAE consumer is having to spend 1.9 per cent more on goods and services than he did a year ago. And in Dubai, the Dubai Statistics Centre (DSC) reported that its consumer price index showed inflation has increased by 3 per cent compared to a year ago.
DSC said that housing and utility costs, which account for almost 44 percent of consumer expenses, climbed 4.8 per cent year-on-year and rose 0.4 per cent month-on-month.
Food and beverage prices, which account for 11 per cent of the basket, also rose 4.8 per cent from a year earlier and gained 1.2 per cent from a month earlier.
“Rising inflation in Dubai and at the national level is to be expected through the course of this year as the sharp increase in housing costs over the past couple of years feeds through to the official inflation indices,” said Khatija Haque, the head of research for the Middle East and North Africa at Emirates NBD.
lbarnard@thenational.ae
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Guide to intelligent investing
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- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
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RACECARD
6pm Emaar Dubai Sprint – Conditions (TB) $60,000 (Turf) 1,200m
6.35pm Graduate Stakes – Conditions (TB) $100,000 (Dirt) 1,600m
7.10pm Al Khail Trophy – Listed (TB) $100,000 (T) 2,810m
7.45pm UAE 1000 Guineas – Listed (TB) $150,000 (D) 1,600m
8.20pm Zabeel Turf – Listed (TB) $100,000 (T) 2,000m
8.55pm Downtown Dubai Cup – Rated Conditions (TB) $80,000 (D) 1,400m
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10.05pm Dubai Sprint – Listed (TB) $100,000 (T) 1,200m
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
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Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
