Building for the future

Sunday Business Post - Dubai Special - Aug 19 2007

There are plenty of investment opportunities in the United Arab Emirates as the country continues its strong building boom, writes Dermot Corrigan.

About 25 per cent of all the world’s cranes are today perched over building sites in the United Arab Emirates (UAE), so it is no surprise, they say, that the crane is the national bird of the UAE.

Among these are the cranes helping to construct the six buildings of more than 100 storeys and about 700 (seven hundred) buildings over 40 storeys, which are under construction in Dubai

The total investment in announced construction projects has been estimated at 338 billion dirhams (€67 billion).

This all adds up to a lot of real estate, especially considering that the official population of Dubai is approximately 1.5 million.

According to Mike Bridge, presenter of a weekly property show on UAE Radio 2 and director of the Dubai Shows property exhibition, potential investors should not worry, as Dubai’s ruler, his highness Sheikh Mohammed Maktoum Bin Rashid Al Maktoum, has a serious and considered plan.

"The government has got a 15 year plan," said Bridge. "The general consensus was that there might be a property bubble, and when is it going to burst? But now there is a consensus, I think, that it is not going to burst, or if it does that it will not be as soon as we thought. People here are still buying, and turning around profits very quickly."

"A friend of mine bought a two bedroom duplex penthouse apartment there for 3.5m dirhams (approx €690,000) last month, this property is due to be handed over in the next six to nine months and she expects to be able to sell it for a profit of about 50 per cent.”



The reason why the bubble does not appear to be bursting any time soon is that over 800 work permits are currently being issued each day in Dubai. This adds up to approximately 300,000 new arrivals in the city every year, which is fuelling a demand for somewhere to live and work.

"The problem here is that we are still playing catch-up," said Bridge. "There is not enough property to meet the number of people who are coming into the UAE. It is very hard for me, working and living in Dubai, to find a property to rent."

Bridge said premium office space was also scarce. 50 of Fortune 500 companies now have operations in Dubai. Halliburton, the major US construction firm, is moving its global headquarters to the city.

The property sector in Dubai is closely controlled by the government. The three biggest developers – Nakheel, Emaar and Dubai Properties – are all owned by Sheikh Mohammed. Foreign investors have only been allowed to buy property in certain areas of the city since 2003.

Bridge said that the introduction of escrow law last month was a further protection for foreign investors, especially those buying off the plans.

"This is good news for international investors because their money is protected," he said.

He said Irish investors considering the Dubai property market should take their time and do their research.

"The majority of Irish investors come over and buy property from the developers themselves," he said. "The first step would be to start the search on the Internet to get a feel for prices. I think then they should literally jump on an Aer Lingus or an Etihad flight and come and see for themselves what is on the books."

Irish property company Larionovo has an office in Dubai and Andrew Brett, its chief executive, said that there were currently opportunities for Irish investors in both commercial and residential property in Dubai.

“Commercial property is quite hard to get hold of in Dubai," said Brett. "It tends to move very quickly. Irish buyers of commercial property in Dubai tend to be people who have been on the ground and have put in quite a bit of time there.”

“Residential property at the moment is quite open, there are an awful lot of people getting involved in buying in Dubai. The rental returns over the last couple of years have been very good.”

Brett said that Irish investors tended to be surprised by the high standard of Dubai residential properties.

"Properties tend to be larger than in Europe, the finish tends to be very good, most would have a concierge service and valet parking,” he said. “Many buildings would also have roof top swimming pools and gymnasiums.”

Brett said that an average Dubai two-bedroom apartment cost about €225,000 and that it was increasingly possible for Irish investors to get local finance.

"This time last year there were only about 12 lenders operating here and now there is over 40.”

Nor is government interference a problem for Irish investors, said Brett.

“The government have been trying to put a rental cap in place as the rental market has gone up over 40 per cent in the last couple of years," said Brett. "It will still be pretty generous, 10 to 12 per cent rental returns will still be quite common in Dubai.”

Brett said that people looking at Dubai for short-term kills were missing the point.

“I think you have to look beyond 2008 or 2009 and see what is happening," said Brett. "Anyone looking at Dubai as a short-term market is being short sighted, we see Dubai as a very good long term investment.”

Island of Ireland insert

One of the most striking development projects underway in Dubai is ‘The World’, a cluster of 300 man-made islands, located four kilometres offshore and shaped to form a map of the world.

The ‘Ireland’ island is five acres in size and is being developed by Clare company Larionovo as a single five-star holiday resort.

“The whole island will run as a hotel,” said Larionovo CEO Andrew Brett. “There is a mixture of villas, townhouses, one-bed, two-bed and three-bed apartments, which will all be rented out by the operator of the hotel.”

The island will also be home to a mix of boutiques, restaurants, recreation and spa facilities and a central marina.

Larionovo is selling the properties and Brett said all the villas and townhouses, the most expensive of which cost €2.8 million, have been snapped up. Apartments, starting at €715,000, are still available.

“By purchasing a unit you become a founding member of the hotel,” he said. “You get two weeks free usage a year and it is rented out for you the rest of the year. 60 per cent of the commercial activities on the island are also returned to clients.”

According to Brett the look of the resort will be recognisably Irish, even if the climate will not.

“Greenery will be a very important part of the look, and we will have underground irrigation system for that,” he said. “The courtyard area is Georgian, with brickwork and slate roofs. We did not want to create a theme park, we wanted a modern interpretation of Ireland.”

Brett said this project showed the audacity of modern Dubai.

“When we first started people thought it was pie in the sky, but when you actually see it on the ground you see this is a very well thought out, serious project,” he said.