Real estate sector's growth reflects structural change of Dubai

DUBAI - The real estate sector in Dubai witnesses rapid and important developments that are accompanied by qualitative changes in the nature of investments and the quality of construction projects, according to a Dubai Chamber of Commerce and Industry report.

By Prepared By Jamila Qadir

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Published: Sat 4 Jun 2005, 10:59 AM

Last updated: Thu 2 Apr 2015, 4:44 PM

The prevailing activity in the market is based on several factors such as consistency, trust, and availability of infrastructure, simple procedures, flow of capitals and profitable revenues.

The annual return to investment rate ranges between nine and 10 per cent compared to bank bonds that make between five and six per cent.

According to experts the boom of the real estate sector reflects the structural change of Dubai. This change, in turn, reflects the nature of economic development in the Emirate and the real estate sector, as Dubai's future necessitates change.

Giant projects, like Dubai Internet City; Dubai Media City; Dubai Medical City; Knowledge Village and others, have attracted highly qualified labour in all fields either by the government or by private sectors.

This highly paid section of the labour force has changed the required quality of residential facilities.

As a result, the need for large flats or villas of excellent finishing has increased and consequently this led to the flow of more investments in the sector. Also the trend to construct luxurious towers and villas that suit the needs of those mentioned has altered location preference of living.

For these reasons the government decided to co-operate with the private sector in satisfying the increasing demand in the market. The government established real estate companies in order to construct distinguished projects such as those carried out by Emaar and Al Ittihad.

Such projects have attracted many Dubai residents particularly because these projects are located outside the crowded areas in the centre of the city.

Government regulations

Currently most of the real estate enterprises in Dubai confirm that the general environment of the sector is positive under the facilities offered to those willing to own or rent; the stable environment, general laws applied in Dubai, ease of investment and unrestricted transfer of capital.

On the other hand some enterprises demand the amendment of laws to better respond to the new transformations of the sector as these laws were stipulated decades ago before the sector's new developments take place.

Most of the real estate enterprises are of the opinion that the responsible authorities, Dubai Municipality in particular, should enhance its effectiveness in organising relations between the landlords and tenants. However, other enterprises suggest that the rent committee of settling disputes between landlords and tenants should play a more significant role in organising these relations.

So those interviewed, from the real estate enterprises, feel that this committee should be given more authority so that its judgment becomes more mandatory for both parties. A lot of enterprises criticise the bias of the committee in favour of the tenant when disputes arise about default of tenant in fulfilling obligations towards the landlord.

These enterprises demand the committee to be fair and give them the power to dispose of the properties. Some of the tenants want the committee to take its presumed role in restricting the value of rents or setting restrictions when the landlord terminates the tenancy contract at a time the tenant is not ready to evacuate the commercial or residential property.

To be acquainted with the role of the committee and to receive its comment on these views, the project team has attempted to contact members of the committee for fact-finding. Unfortunately, that was not possible.

Access to Finance

The level of activity of the real estate sector indicates the volume of available liquidity circulated in the local economy. In turn, the business cycle in the real estate sector affects the growth of the closely linked sectors, particularly construction and banks.

The major real estate enterprises adapt the self-finance policy for most of their projects; however, they also partly depend on banks. According to the major companies, small and medium enterprises depend more on bank finance. It is noticed that despite the large number of national and foreign banks in Dubai (48 banks in 2004), few of them finance real estate projects.

Due to the significant role of the sector, an idea of establishing a real estate bank has emerged several years ago similar to what exists in some other Arab countries. The bank could finance the real estate projects to activate the sector.

But this idea was not implemented due to some official bodies in the sector, which considered it unnecessary, as there is no real finance problem. Therefore, enterprises that seek finance will find a national or foreign bank to do the same according to the agreed conditions between the two parties.

Access to Human Resources

A major characteristic of real estate sector is the small number of workers compared to the construction sector, which employs a large number of workers. The real estate sector depends on brokers and agents for renting, selling, purchasing and other related business services.

According to an official of one of the leading real estate companies in Dubai, only one person could manage up to 200 residential or commercial units. A manager of another company said the sector depends on the cheap labour, particularly from Asia.

Access to Construction Services

Whenever there is an increase in the demand for real estate, this induces the construction sector to increase its activity. The activity in the construction sector reflects the economic and social development. This fact appears in projects carried out by this sector like residential units, road networks, ports, airports, hospitals, universities, hotels and others.

The construction sector has responded to the requirements of the real estate sector resulting in the emergence of giant projects that represent added value to the civil and tourist features of Dubai. The role played by the sector has been reinforced by the entrance of the public joint stock companies carrying out large-scale projects.

During the period 1998-2002 the number of contractors has decreased with about 30 per cent. In some cases, and in order for the relatively small construction local enterprises to meet the requirements of the large ongoing projects, such enterprises had to form joint-ventures and alliances with other foreign companies. In other cases, projects were completely handed over to foreign large construction companies, especially new gigantic ones. The construction sector depends on large numbers of low skilled and low paid labourers but in the recent years with the expansion of the sector there is an increase in the higher skilled labour and enterprises that use high technology in construction have entered the market. Employment in Dubai’s construction sector increased from 73,850 in 1998 to 90,432 in 2002, with a growth rate of 22.5 per cent.

Readers are welcomed to send their remarks about issues raised in our weekly real estate review to ktestate@netscape.net, while industry specialists, businessmen and government officials are invited to furnish our readers with their invaluable analysis and comments.


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