Parking spots have become the latest hot property in Dubai.
Surging real estate prices in the emirate and a rapidly rising population is fuelling demand for parking – with downtown prices rising as high as Dh125,000 for a single space.
This is encouraging some developers to sell parking spaces on to funds and other investors. The redevelopment of vacant plots throughout the city that had been used as unnofficial car parks is also stoking the market.
“Some developers are suddenly realising that there’s potential for a new revenue stream,” said Matthew Green, the head of research and consultancy at CBRE.
A patch of asphalt in Jumeirah Lakes Towers (JLT) or Dubai’s Business Bay costs Dh60,000, while a space of your own near the Burj Khalifa could set you back up to Dh125,000, according to Marina Ridila, an executive at Damac.
Parking spaces in Dubai go for a song, however, when compared with parking spaces in New York. One central Manhattan garage recently generated headlines when its owner priced it at US$1 million.
Dubai’s rebounding property market is increasing the opportunity cost of keeping parking bays in common use. The cost of high and mid-end apartments in Dubai has increased considerably over the past two years, according to data from Cluttons. The cost of the average apartment in Business Bay has doubled over the last year, climbing to Dh1,466.54 per square foot in December, from Dh771 per sq ft at the beginning of 2013.
Climbing costs mean climbing revenues – which has led developers to cast an eagle eye on parking spaces.
But whether residents can be denied parking spaces without this being explicitly stated in their contracts is “a grey area”, said Tom O’Grady, a partner and specialist in property at the law firm DLA Piper.
“If it’s clear in the original contract that there’s no parking space, that’s fine,” said Mr O’Grady. Otherwise, it was “an area of contention” whether developers were allowed to sell rights to use parking spaces separately from apartments.
Whether a space had been legally hived off from its apartment would depend on “what representations were made at the time of the sale, and subject to circumstantial evidence, for instance, the differential between the price of 100 sq ft of property with and without a parking space.”
Municipality regulations require that developers build a certain amount of parking, but they don’t specify that this must be bundled with existing apartments, said Mr Green.
The normal requirement was that for every 500 sq ft of development, one parking space must be provided, said Mr O’Grady. “If [parking has been] built, there’s an argument that the space has been provided” in accordance with the municipality’s regulations, even if it was sold to individuals other than the renter. “But whether the regulator will take that view, should a dispute arise, is another question,” he said.
Freehold purchases of parking spaces are not an option. “Ownership of an individual space [is] difficult. [While] on-surface parking is not a problem, because you’re effectively buying a piece of land … if you think about a car park located in an existing building, you’re talking about a shared facility.”
“All you can have currently is an exclusive right to use. In theory, you’d be able to sell the right to use it separately from the apartment … but in practice the land department wouldn’t register it,” said Mr O’Grady.
“But you could rent it out annually so long as the developer issued a no objection certificate.”
It means that residents who lack spaces in facilities with parking should check their contracts carefully. “As parking becomes more scarce, people see the value in buying freehold space,” said Mr Green. “People seem to charge pretty exorbitant rates.”
Damac, which is the developer for Dubai’s JLT, sells parking spaces to its existing customers on a number of its projects.
“As occupation of areas [like JLT and Tecom] increases, you’ll see more issues with potential [parking] shortages,” said Mr Green. “But you’ll probably also see ways in which developers fill this gap either by supplying new parking or allowing parking in new areas.”
Both Mr Green and Mr O’Grady believe that building and operating parking lots, in the style of American or European paid parking garages, could be rewarding for developers. “Very often in the UK, car parking is more lucrative than the real estate itself,” said Mr O’Grady, who has worked on a number of large commercial real estate transactions in Europe.
“Monetisation is possible. But it would require a change in thinking from some developers. Most car parks are built as facilities in conjunction with residential or commercial projects.”
Sandy areas, frequently used as impromptu places to park, are becoming increasingly rare as they are proving too valuable to leave undeveloped.
Vacant sites and desert areas, that had previously been used for parking, are often taken back “quite quickly”, said Mr Green. “After the Dubai Municipality ended its provision of shared parking, Tecom, which operates a number of business parks in the city, quickly repurposed its existing sandy areas,” he said.