Monday, June 29, 2009

Dubai will rediscover its basic business appeal without the glitz, to lead the real estate sector to a sustainable recovery says expert

Once we get there – then what?

Dubai will rediscover its basic business appeal without the glitz, to lead the real estate sector to a sustainable recovery says expert

Many industry commentators have now agreed that Dubai will soon start to see the green shoots of recovery. During a recent Cityscape Connect forum, a panel covering the industry spectrum from investors to real estate agents agreed that Dubai’s property market would start to sprout green shoots sometime between January and June next year.

However the big question now is what shape will the recovery take and even more importantly, how will we know that it is sustainable?

According to Mohammed Nimer, CEO of mid market property development company MAG Group Properties which is involved in AED3 billion worth of projects in the UAE, “The fact that there is a general consensus regarding the end of the downturn is important, but we should now be looking ahead and asking ourselves, how do we make the recovery sustainable, indeed what will sustainable look like?”

Much has been made about the shape of the recovery, V shape, U shape, L shape, W shape or perhaps even a square root shape.

“A V shape recovery would be a disaster - straight back to boom and bust. The others are really a variation on how quickly we pick up, but as always it will be the fundamentals that lead us to sustainable recovery,” added Nimer.

According to Nimer, the key economic indicators are still positive and improving as we move into the second half of the year. The IMF is forecasting UAE economic growth of around 3%. The gap between loans and deposits at UAE banks narrowed in May to AED31 billion, a decrease of nearly AED5 billion since April. The figure had stood at AED90 billion at the start of 2009.

UAE bank lending grew for the first time in May since December 2008, when loans increased to AED207 billion from AED201 billion a month earlier, an increase of 2.9%, despite concerns over AED2 billion outstanding on credit cards 10% of which may default.

“The oil price has doubled since the turn of the year and seems to have stabilised at around $70 a barrel, even though the summer is traditionally a time for weaker prices with less demand for heating oil in the west,” said Nimer.

However concerns remain with population and unemployment which are inextricably linked in the UAE. It is a hot topic at the moment - how many expatriates will not return after the summer break, or may return alone without their families?

All should be revealed by October, but certainly for those who do return, they will be welcomed by more affordable housing. According to Landmark Advisory, rental prices are coming down and Q3 this year will witness falls of up to 25% as more new-build supply comes onto the market.

“I don’t subscribe to the view that people will upgrade their accommodation necessarily, but where I do see pent up demand is from mid management professionals who in the past have had to share accommodation. The size of that potential market must be considerable,” said Nimer.

It has also been widely reported that those expatriates that have lost their jobs and return home may be unwilling to ‘forgive’ Dubai and try again to resume their careers here? Nimer disagrees.

“Some may have no alternative, with their home economies still sluggish with high unemployment. Dubai will by default rediscover its basic appeal but without the glitz – a safe and secure, tax free environment with an advanced infrastructure. That will be too much for expatriate entrepreneurs and business professionals to resist and I firmly believe that they will return.”

In summary, Nimer added, “The recovery will be gradual and sustainable. If I had to put a shape to it, it’s probably a square root, the fundamentals are sound, property is becoming more affordable through basic supply and demand, which in turn cuts business costs whether its commercial rent or employee housing allowance.”

Photo caption: Mohammed Nimer, CEO of MAG Group Property Development

About the MAG Group

The Dubai-based Moafaq Al Gaddah Group of Companies (the MAG Group) was established in 1978 and has grown into a multinational organisation with 18 offices in eight countries throughout Europe, the Middle East and Asia.

In the last five years the MAG Group Properties has invested in 12 properties at various stages of development across the residential, commercial and industrial sectors. The company focuses on projects that provide long-term benefits to investors and customers.

In total MAG has a property portfolio in excess of AED3 billion and was one of the first developers to create Escrow accounts for all of its projects, long before the Dubai Government introduced Law number 8. In October last year, MAG Property Development was awarded ISO 9001 certification by risk management company Det Norske Veritas (DNV). MAG still remains one of the few developers in the region to be accredited to that standard.

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