For all its challenges, Ras al Khaimah remains an intriguing land of possibilities for some buyers.
Ras Al Khaimah a property investors' alternative
On a recent Friday afternoon, the quiet lanes of Al Hamra Village were sprinkled with a few Hummers, parked here and there in private garage spaces. A little further on, a young woman standing at her doorstep welcomed a lorry loaded with furniture travelling in her direction. Lee Russell from South Africa was moving in. "I was living in Dubai and four months ago our landlord raised the rent by Dh60,000 [US$16,335] for a two-bedroom," she said. "So when we saw this beautiful area on the sea we decided to move. We now pay only Dh145,000 a year for a larger, three-bedroom at an hour's drive."
She said that if in six months time she could obtain financing, she would not think twice before buying. From the other side of the house, Ms Lee can see a golf course to which people travel from as far away as Dubai, attracted by the less expensive green fees. A paraglider crosses the skyline over her head towards the sea, where a boat full of European tourists is sailing along the coast. The area has plenty to offer residents and visitors.
Ras al Khaimah's property market, like nearly everywhere in the nation, faces its challenges. Some developers cannot afford to build the projects they have sold, many developments have no power connected and the regulatory environment is still maturing. But the emirate also sees some long-term positives. RAK was the second emirate - after Dubai in 2002 - to allow foreign ownership of property. Al Hamra Village, with its 1,350 residences, is one of the few freehold areas in Ras al Khaimah where foreigners, including non-GCC citizens, can buy property. Others include the man-made Al Marjan Island, The Cove and Mina Al Arab, all located on the waterfront and several kilometres west of the city.
The legal framework also improved, with the introduction of escrow accounts in July of last year. "A developer now cannot sell anything before opening an escrow," says Khater Massaad, the chief executive of the Ras al Khaimah Investment Authority (RAKIA). But the rule has yet to be implemented on a larger scale. "Not all the developers have opened an account yet," says a broker from Hunt and Harris Estates, the real estate agents.
For all its challenges, Ras al Khaimah remains an intriguing land of possibilities for some buyers, especially those willing to overlook some daunting problems in the short term, such as the lack of electricity in many places. Among the underlying strengths of the emirate are its natural beauty and a modest but solid industrial base. "We have tourism and several industrial parks," says Sheikh Saud bin Saqr, the Crown Prince and Deputy Ruler of Ras al Khaimah. "Our property developments are not being built for nobody."
One of the property industry's main assets in the emirate is its popularity with tourists. Located at the northern tip of the UAE, the area offers a diverse landscape with large natural beaches, mountains and desert. Every year the emirate attracts nearly 500,000 visitors, mainly Europeans. "People living in Dubai also like to buy their vacation homes in Ras al Khaimah," says Zaid Siddik, a property consultant at Aqua Properties.
The second driver of the market is industry, with manufacturing accounting for 9 per cent of the emirate's GDP. Engineers and clerks working for the RAK Ceramics plant, the largest producer of ceramics in the world, or other factories located in the emirate's industrial zones, need dwellings. Like everywhere else in the UAE, the market has been hit hard by the global economic crisis. Prices, which had reached an average of Dh1,600 per square foot in prestigious projects such as Mina Al Arab, have been falling since September, especially in freehold areas, according to brokers and residents.
The emirate is more fortunate than nearby Ajman, where first-time developers have sold hundreds of buildings and not yet started construction. The off-plan market in Ras al Khaimah has grown on a more limited scale and more slowly than Ajman, giving it time for construction to go ahead. Projects have already been delivered and are being developed by fewer players that are often backed by the Government, including Rakeen, Al Hamra Real Estate and RAK Properties.
"The fact that expatriates can already move into nice houses on the beach gives a certain confidence," says an agent at Hunt and Harris Estates. Still, with buyers scarce on the resale market and existing buyers unable to meet instalments, developers are struggling to proceed with construction. Some have recently announced delays. RAK Properties, which is the emirate's largest developer and is listed on the Abu Dhabi bourse, has promised to deliver its two 45-storey Julfar Towers this year and the first two phases of its flagship project Mina Al Arab - about 300 villas - this year and next year, as scheduled.
But the next and unsold phases of Mina Al Arab will be delayed. RAKIA owns most of the recently launched developments. Their early stages of development give the authority flexibility to delay or cancel parts of them, according to Mr Massaad. RAKIA's most advanced project is Al Marjan Island, a 270 hectare, man-made island designed to resemble a coral atoll. "The land has been totally reclaimed and developers have paid up to 20 per cent so far. Whether they will continue to pay or not, we will see," says Mr Massaad, adding that he expected defaults.
Khoie Properties, the developer behind one of Al Marjan Island's flagship projects, La Hoya Bay, already has said it was insolvent and hoped that RAKIA would finish the construction. The master plan of Dana Island, another project launched by RAKIA, will be scaled back. "The land has only been reclaimed 15 per cent and we have not sold very much, so there are no big consequences in completing it at a smaller size," he said.
Gateway City, the $1.1 billion development set to be home to 250,000 people, is on hold, according to a source close to RAKIA. The authority recently promised flexibility to buyers and developers, including delaying payment plans and transferring purchases from one project to another. But times will be tough. And even though the electricity shortage is being addressed, it remains a major issue in the short term. Recently delivered residential areas such as The Cove do not include power supply in the package. Several ready buildings in the city have been waiting for power for more than a year, according to brokers and developers.
Sheikh Saud is aware of the issue. "The federal institution called FEWA [Federal Electricity and Water Authority], was supposed to look after the supply of power. But they are not delivering it," he told The National in a recent interview. "We are undertaking studies and have just started to build generators in the meantime. They are in Khor Khuwair, in Al Hamra and in Al Ghail. We intend to supply the whole of Ras al Khaimah."
Industry insiders mention a shortage of capacity at FEWA. The body declined to make officials available for comment. According to the Oxford Business Group, FEWA plans to boost its capacity of 1,200 megawatts (MW) to 2,000MW for the northern emirates of RAK, Ajman, Umm al Qaiwain and Fujairah by 2018. But experts suggest that this will still not be enough. Plans for four small gas-fired power stations were announced last year by RAKIA, most of them to supply industrial zones. The first 45MW plant become operational last week and was built in only eight months. It will cover the Al Hamra area, including Al Hamra Village.
"The two costly generators of Al Hamra Village are bound to be removed and another 120MW will be added in 12 months," says Serge Guillaume, the executive director of RAKIA. RAKIA recently announced that it would develop coal-fired power generation in the emirate in the next two years, adding 400MW, which will be expanded within five years to 1,000MW. One RAKIA source said that Ras al Khaimah would need more than 4,000MW by 2015 to meet the power needs of new developments, although the economic slowdown may cut growth and the electricity need.
In the meantime, the RAK Government hopes to adjust to the crisis. "We have the buildings, we have the tourism and the industry. So once we get the electricity, RAK will be really booming," says Patricia Mottershead, head of the brokerage agency Premium Real Estate. email@example.com