Bargains drive buying in Dubai property

There is a fragile recovery under way in Dubai's beleaguered property market, as buyers take advantage of a drop so severe it has put properties with a view of the Dubai Desert Classic golf tournament within reach of those who a year ago could only afford a view of the desert. Leading the market are glamorous properties like the Emirates Crown, with its views over Dubai Marina to the Gulf. An unnamed Saudi buyer in July paid Dh11.9 million (US$3.2m) for one of Emirates Crown's five-bedroom suites. The suite occupies half of the 56th floor and matches one he bought the year before above it on the 57th. In August, he came back and bought the other side of the two floors. "There's nothing left," says Hani Saloum, a sales executive at Vakson Freehold Properties, which manages Emirates Crown. "Top-end developments like this in [Dubai] Marina are in high demand." Yet for every high-flying sale like those, there are dozens more in developments with less exclusive names, such as Discovery Gardens, International City and The Greens, that bear witness to a subtle migration among Dubai's most important buyers away from speculating on unfinished buildings of uncertain quality to completed residences that offer affordability and liveability. "The end-user wants to know which is going to work better, and who is my neighbour, and am I near the Metro," says Linda Mahoney, the chief executive of Better Homes and a 25-year veteran of the UAE property market. "Before it was like, 'I don't care what I'm buying because I'm never going to see this thing'. " Residential prices in the third quarter fell roughly 14 per cent compared to the same period last year, when the market peaked, to Dh929 per square foot, according to data from Reidin.com, which manages an online database of every property transaction registered with the Dubai Land Department since 1973. But compared with the previous quarter, prices in the three months to September rose 8 per cent, after having suffered declines of as much as 30 per cent earlier in the year. An analysis by The National of the more than 31,000 transactions registered in the past 30 months reveals that activity in the residential market failed to succumb to the drought many predicted would be caused by the summer heat and Ramadan. Still, only half as many properties are changing hands these days as before the property bubble burst, and property analysts and executives are pessimistic about the recovery lasting. Lingering uncertainty about the global economy and confusion about whether foreigners who buy property in Dubai can count on a visa allowing them to live there are putting a damper on demand. More worrisome is the prospect of thousands of new units soon to be released onto Dubai's market, they say, which means Dubai remains a buyer's market. "We've already suffered a demand shock," says Craig Plumb,the head of research at Jones Lang LaSalle in Dubai, which estimates that another 5,000 units are due to come onto the market before year's end. "Now we'll see a supply shock." That is bad news for the overall economy: construction and property rank as the emirate's largest employer and the biggest contributor to growth after oil. "You're seeing a pick-up in activity, but going forward growth will be slower," says Giyas Gokkent, the chief economist at National Bank of Abu Dhabi. The Land Department's data also fail to capture the impact of what analysts and agents say has been the utter collapse of so-called off-plan sales, most of which will probably never be registered. In those deals, investors made downpayments on unfinished properties, hoping to sell them for a profit before construction was complete and the units had to be paid for in full. "It's all end-users," says Anjili Samtani, who runs Megabucks Realty. She said the downturn had convinced her to take the rest of the year off. "It's still very quiet. There's not much moving at all." Prices among unfinished properties have very likely fallen much further than those for completed ones, analysts say. The danger is that as these projects are completed, their buyers will choose to walk away from them rather than try to finance a purchase that is worth much less than what they paid for it, dealing a further blow to developers and banks. Demand also remains muted among the groups of foreigners who traditionally represent the largest sources of demand for Dubai property - Indians, Britons and Pakistanis. Trends among Dubai's property investors seem to reflect the economic situation in buyers' home countries as much as they do market forces at play in Dubai itself. Iranian activity in Dubai property understandably surged in the third quarter, with a sharp spike in purchases in August as president Mahmoud Ahmadinejad took severe measures against protests of alleged fraud in his June re-election. But after seeing economic growth in their country slip with oil prices from 7.8 per cent in 2007 to 2.2 per cent last year, the value of their purchases dropped sharply as Iranian investors started selling fancier holdings in Dubai Marina and instead buying much less expensive units in Nakheel's sprawling Discovery Gardens development further inland. The influx of Iranian interest failed to perk up prices in Discovery Gardens, however. Prices dropped 31 per cent in the third quarter to Dh646 per sq ft thanks to a shift out of that development by another key group of buyers, Pakistanis. The nation's crisis and growing political insecurity have forced it to seek $7.6 billion in emergency funding from the IMF, which forecasts that Pakistan's economy will grow just 2 per cent this year. Pakistani investors have also been shifting downmarket in Dubai, selling heavily in Discovery Gardens and instead buying units in an even larger and more barren Nakheel development 15km into the desert, International City. Still, prices in International City dropped 8 per cent in the third quarter to Dh581 per sq ft, largely because of a rash of selling by investors from a nation with entirely different economic prospects, India. Although hit hard by the crisis, India has managed to bounce back fairly rapidly along with the rest of Asia, thanks to resilient domestic demand and recovery in industrial production. The IMF expects India's economy to grow by 5.4 per cent this year, and by 6.4 per cent next year. With their own economy recovering faster than most Dubai buyers, Indian investors are taking advantage of falling prices to move upmarket. Their favourite: Emaar's The Greens, with its suburban feel, swimming pools, basketball courts and barbecue pits. In particular favour are the new Fairways towers overlooking the Emirates Golf Club, home of the Dubai Desert Classic, which Tiger Woods won in 2006 and again last year. And why wouldn't they be? Prices in The Greens in the latest quarter sank faster than one of Wood's putts, falling 25 per cent to Dh975 per sq ft, about the same level where prices in International City peaked in October of last year. warnold@thenational.ae