Analysis

Righting the Balance: Industry reacts to Dubai’s real estate reforms

Leading developers and analysts give their views the recent establishment of a higher committee for real estate in Dubai

At the start of September, HH Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister and Ruler of Dubai, announced that a higher committee for real estate, headed by HH Deputy Ruler Sheikh Maktoum bin Mohammed and senior property developers, would be formed to help strike a balance between supply and demand in the emirate’s real estate sector.

Sheikh Mohammed added that the body will aim to avoid the duplication of projects and ensure that they add value to the economy. In addition, he said that Sheikh Maktoum will ensure that semi-governmental real estate companies do not compete with the private sector and that over the next decade, a strategic comprehensive plan will be developed for all property projects in Dubai.

The initiative came in the wake of an open letter published by Sheikh Mohammed, which listed six main points addressing government work and Emiratisation, services and the country’s economy.

“We are not one of the countries that move according to the average economic rates. We are a country that seeks to achieve time-saving economic leaps,” HH wrote in the letter. “In the next phase, we need [to pitch] quality projects, exceptional ideas to boost our economy. Real estate projects need to control their pace to bring added value to the national economy so as not to become a burden and a source of imbalance in our economic process.”

Since 2014, the UAE property market has slowed, thanks to falling oil prices and ongoing concerns of an over-supply of properties. However, following a raft of reforms such as long-term visas now available to investors, initiatives such as Ghadan 21, changes to freehold property law and, of course, the expected impact of Expo 2020 Dubai, there has been a rise in market sentiment.

As such, the announcement of the higher committee has been met with positivity by the real estate sector, with Theirry Delvaux, CEO of JLL MENA, welcoming the news as it represents a positive step towards achieving a more balanced market in the emirate.

“High levels of recent supply are being felt across both the commercial and residential sectors, and while not all proposed projects will complete on schedule, we do expect to see a significant spike in project completions across the residential and commercial sectors over the remainder of 2019,” he says.

The average level of residential completions in Dubai over the past three years has been around 20,000 dwellings per annum, while as many as 60,000 dwellings are scheduled for completion in 2019 alone. A similar increase in new supply is also being witnessed in the retail sector, where completions this year could exceed 600,000sqm, compared to an average of 233,000sqm over the past three years, JLL added in a statement.

“The extent to which this new committee can regulate and achieve an improved balance of supply and demand remains to be seen, but recognition of the current imbalance and the implementation of a plan to counteract this problem are key steps towards making a change,” Delvaux points out.

Rahail Aslam, CEO of Select Group, a Dubai-based private developer, adds that the announcement of the committee is a prudent move for any market, and especially for Dubai.

“Taking inventory of what’s been built, looking at Dubai’s economic ambitions and indicators for the next five to ten years and linking this to a methodical approach, measuring population growth and job creation, will certainly help reduce the chances of protracted market declines,” he explains. “Having said that, every developer has a responsibility to keep a close eye on data and plan with plenty of due diligence before committing to any development.”

Ahmed Alkhoshaibi, CEO of Arada Developments, agrees with Aslam, pointing out that such a move is critical in a market that is becoming increasingly mature, especially when compared to its neighbours.

“It is critical that in a market where the supply-and-demand situation is already a matter of concern, that only projects that have the right scope and quality are allowed to proceed. We are yet to fully understand what the full mandate of the committee will be, but any initiative that brings developers and government closer together will only help streamline processes, improve urban planning and create better opportunities for buyers, tenants and visitors.”

While Nicholas Maclean, managing director of CBRE MENAT, says that the impact of the committee on the real estate market will only be seen once it begins to take action, he adds that it is refreshing to see that when aspects of the market reach an imbalance, the government is prepared to intervene with the creation of a committee to seek solutions.

“The very fact that the government is looking is in itself a positive for landlords, occupiers and investors. Supply and demand are out of kilter. Although activity continues, growth in supply across all asset classes appears to be higher than the equivalent growth in demand. The resulting compression of pricing, although in the short term welcome to occupiers, will depress the investment and development markets and will, over the long term, affect the quality of stock. Therefore, developers should welcome the initiative, because ultimately the potential market intervention will be designed to embrace market performance from all participants,” Maclean says.

Alsam chimes in to add that he expects the market to react in a better way over the next 12 to 18 months, in the wake of this positive step by the Dubai government. “As a developer with ambitions to enter the Dubai market in the future, this is exactly the sort of message that we want to hear. I also believe that other developers, both locally and internationally, will also be encouraged by this news, which will result in greater foreign direct investment into Dubai over the long term.”

In conclusion, Delvaux adds that while the ‘build it and they will come’ model has served Dubai well, the time has now come for it to review this approach and create a more balanced market.

“Achieving this objective will inevitably require more controls on the level of future supply than have been implemented in the past, but it is an initiative set to improve the country’s long-term economy,” he asserts.

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