Chinese property investors are swapping Shanghai for Dubai as an overheating market at home draws more buyers to the emirate’s cheapest locations.
Rental yields as high as 10 per cent are tempting investors from mainland China to buy into developments such as International City and Discovery Gardens where rents have risen the most.
Nakheel hired Chinese-speaking agents to field sales inquiries from Chinese investors buying homes at its Warsan development announced last month.
“We are seeing a lot of people from China buying for the first time in Dubai – it’s the first time we’ve seen that,” said the Nakheel chairman Ali Rashid Lootah.
The arrival of Chinese investors follows the rapid acceleration of property prices in China and in some other Asian economies, encouraging buyers to target overseas markets.
Foreign property investment by Chinese companies shot up 600 per cent last year to US$5.6 billion, according to research from Savills China.
The property broker expects that trend to accelerate, with small-scale residential purchases by individuals leading to larger deals involving institutional investors from China. Chinese insurance companies are estimated to control a $14.4bn war chest for overseas property purchases, according to CBRE.
At the offices of Atomic Properties in International City, sales agent Hai Rong Xiao is kept busy with inquiries from Chinese investors, some of whom fly in with cash to snap up apartments in the city.
The sprawling development of low-cost homes is a long way from the upmarket addresses of the Marina and Downtown that feature in the popular brochure images of the emirate.
Few developments in this remote location near the labour camps and landfill sites of the city’s periphery ever make it to the halls of Cityscape. But this is where the best rental returns are to be had.
For investors motivated by yield rather than location, it is one of the most exciting parts of the property market, if far from the most aesthetically desirable.
Apartments can be bought here for less than the annual rent of similarly sized units in the city’s most plush addresses.
Studios in International City were selling for Dh300,000 yesterday, but renting for more than Dh34,000 a year – a very attractive yield for any property investor.
Rents here have risen faster than anywhere else in Dubai over the past year, soaring 35 per cent in the 12 months to the end of September. But rents in the ultra-high-end Downtown Dubai gained just 14 per cent over the same period, according to Asteco.
“Interestingly, it has been the secondary and more affordable locations that have seen the greatest increases in the third quarter,” Jones Lang LaSalle said in a report.
Mr Rong, who has adopted the English name of Stephen Hawking when talking to English-speaking clients, said: “It is about the returns. In International City you can get 9 or 10 per cent returns. But in China you can’t get that.”
He said property available for $1,500 per square metre in International City might cost $2,000 in a comparable location in China.
The arrival of Chinese property investors follows a trend that has already benefited Dubai’s retail and hotel sectors.
Indeed, the rising numbers of visitors breaking their journeys in the UAE has transformed the retail industry.
Today, the best-selling item at Dubai Duty Free is the Chunghwa brand of cigarettes from China.
Chinese visitors spent $258 million in the UAE last year, up 14 per cent from 2011, according to Visa. In the first seven months of the year, Abu Dhabi received almost 24,000 guests from China – an increase of more than a third on the previous year.
In China, new home prices in the country’s four major cities in August rose the most since January 2011, with Guangzhou prices soaring by as much as 19 per cent, according to data from the country’s National Bureau of Statistics. Home prices in Shanghai and Beijing gained about 15 per cent from a year earlier.
While Dubai recorded even bigger gains than that in some locations over the same period, strong investment yields from a rapidly rising rental market has encouraged a flood of overseas money into the market.
As investors attending the flashy halls of the Cityscape property show in Dubai yesterday pondered if the emirate was once again threatened by another speculative bubble, on the other side of the city Mr Rong seemed unperturbed.
“In China, prices have reached the ceiling,” he said. “In Dubai, they are rising by the day.”