February 2013 - eZine

Last month at a glance: • • • •

Emirates Banking Association to submit mortgage cap suggestions Investor protection law Dubai ranked as the strongest housing market Extra tenancy renewal fees allowed: RERA

Issue No. 2 - Feb 2013

Latest from Economy Market Demand, Hotel Sector & Projects

Dubai Freehold Property History of Freehold Revolution Why were freehold properties offered to foreigners?

International Property Markets United States- The Giant

Real Estate Investing How to get started?

Prepared by: Mo. Asadian

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Valoran Real Estate Brokers Issue No. 2 - Feb 2013

News Digest: Last month at a glance Emirates Banking Association to submit mortgage cap suggestions Central Bank of the UAE shocked the entire market on New Year’s Eve when it released the new mortgage cap rule on lending property for both expatriates and Emiratis in an attempt to prevent property market from over-heating.

The new banking rules cap loans extended to expat borrowers at 50 percent, while Emiratis at 70 percent of the value of real estate on the first mortgage. Then banks can only loan 60 percent on subsequent mortgages to nationals and 40 percent to expats.

Even though the new rule was supposed to come in effect by the beginning of the year, the commercial banks resisted and requested the Central Bank to postpone implementation of the cap for at least 6 months which was eventually agreed upon.

Meanwhile, The Emirates Banking Association (EBA) which represents the major banks in the UAE is proposing to the Central Bank to adjust the mortgage cap on lending for the first property at 75 per cent for expatriates and 80 per cent for Emiratis. A second home loan would be capped at 60 per cent for expatriates and 65 per cent for Emiratis in the EBA’s recommendations.

Furthermore, it was proposed that properties under construction should be capped at 50 per cent for both expats and Emiratis to minimize possibility of flipping properties. Emiratis with access to home finance through a government entity such as the Mohammad Bin Rashid Housing Establishment should be excluded from the mortgage limits.

The EBA is also considering limiting total lending on a single mortgage to Dh25million. The maximum repayment period on a mortgage loan could be 25 years. The value of total mortgage lending in the UAE stands at Dh60 billion out of a total of Dh500 billion in retail lending.

The recommendations are a response to a second questionnaire from the Central Bank to gauge the opinions of banks in the circular it issued in December that capped mortgages at 50 per cent for expats on the value of the first property.

The EBA and the Central Bank are in a continuos dialogue to “reach an ideal solution” and that the Central Bank is expected to make a final decision by the second half of the year. The EBA has urged the Ministry of Finance and Central Bank to speed the process of activating the Credit Bureau, where every mortgage lending would be registered.

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Investor protection law Dubai’s new real estate investor protection law is to be released during the first quarter of 2013, the Dubai Land Department has confirmed. The law will pave the way for property investors to get a complete refund if a developer fails to complete or handover a property within the stipulated timeframe, or if the developer deliberately defrauds, or alters the specifications of the unit without obtaining the necessary permits.

Investors will also be able to claim compensation in cases of breach of any warranty or undertaking contained in the sale contract by a broker or for misrepresentation by a developer.

Extra tenancy renewal fees allowed: RERA The Real Estate Regulatory Authority (RERA) in Dubai has clarified that tenants can be charged over and above the mandatory Dh160 in government fees to renew their tenancy contracts. Existing laws state that Dh110 covers the RERA administrative fees and Dh50 covers the Ejari registration fees for tenants. The property companies can also charge their own administrative fees as long as they are transparent and can be justified to the tenant.

Other ‘Headlines in brief’ • Dubai residential price up by 17% in 2012- CBRE • Dubai to build world’s largest mall as part of new mega-city project.

• Most expensive real estate transaction in 20124,349 sq. ft. apartment in Dubai Marina’s Le Reve Tower for AED34.7m (US$9.4m)- REIDIN

Dubai ranked as the strongest housing market The resurgence in the Dubai property market over the past year has got it- the rank of being the strongest housing market in the world, according to the Global Property Guide. The independent report, which was recently released, mentioned that residential property index of Dubai jumped 13.46 percent during the year, in comparison to 1.8 percent decline in 2011. One of the major factors for international investors is the attraction of a tax-free system in Dubai, and the capital gains on most property sales and on rental yields. Several global investors are seeking to spread exposure of their portfolios and the Dubai realty market is serving as the key investment vehicle, not only for institutional investors, but also for individual investors, who recognize the potential of longterm gains available in the market.

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• Green shoots of recovery for Dubai real estate - Gulf News: Success of off-plan sales, enforcement of regulation and project handovers are signs of turnaround • Jones Lang LaSalle: Return of confidence to Dubai real estate market- Factors like the UAE’s economic growth, increased employment, Dubai’s safe haven status and improved price/ rental performance have led to continued market confidence. With many real estate project announcements over the past six months, this increased market confidence has become more pronounced. The government is keen to create a more stable market environment.

Valoran Real Estate Brokers Issue No. 2 - Feb 2013

Latest from Economy • The Department of Economic Development’s Business Confidence Index (BCI) for Dubai rose to 122 points in Q3, compared to 106 points in Q2. This index reflects the positive business sentiment in Dubai and expectations of improvements in sales and business volumes.

• While there has been a marginal increase in headline rents in some office buildings, prime rents for office space in the CBD remained unchanged in Q4. Demand remains driven by occupiers’ consolidation and upgrades. With activity starting to pick up towards the end of the year, there remains potential for rental growth in 2013, but this growth will be limited to a few prime office buildings with high occupancy rates.

• Demand remains strong for retail space in the best performing super-regional malls (eg: Dubai Mall, Mall of the Emirates), resulting in improved prime rents at AED 4,900 / sq m.

The two-tier market continues, with older malls witnessing subdued demand from consumers and retailers, resulting in a wider gap between primary and secondary canters.

• The hotel sector has performed well throughout 2012, supported by strong tourist arrivals and the opening of a number of branded hotel chains. This is reflected by an improvement in occupancy rates to 77% (year to November) compared to 74% in the same period of 2011, as well as an increase in both Average Daily Rates (ADRs) and Revenue Per Available Room (RevPar). This positive trend is set to continue in 2013.

• On the back of improving sentiment and stronger fundamentals, a series of new largescale projects have recently been announced.

• One of the most significant is Mohammed Bin Rashid City (MBRC) to be developed jointly

by Emaar and Dubai Properties. This new city will include the world’s biggest shopping mall (Mall of the World), a Universal Studios franchise, hotel facilities and a large public park. It is designed to attract 35 million visitors annually. The project was initially launched back in 2008 but has been revised since then.

• The first project within MBR City has already been launched. Dubai Hills is a gated golf www.valoran.ae

Valoran Real Estate Brokers Issue No. 2 - Feb 2013

course community, which will feature luxury residences on plots of 1,900 to 2,800 sq m.

a 2.8km canal extending Business Bay to the Gulf, is expected to be completed in two years.

• Another mega project that has been announced recently is an AED 10 billion entertainment complex in Jebel Ali, featuring five theme-parks. The project will be developed by Meraas and the first phase is due to be delivered by 2014.

• Al Maktoum International Airport will start business aviation operations in early 2013 while the commercial passenger facility is scheduled to open later in the year. The airport, located at Dubai World Central (DWC), has a capacity for 160 million passengers and 12 million tonnes of cargo. It is anticipated to be the largest airport in the world once completed.

• The world’s tallest hotel, JW Marriott Marquis, has opened its first phase, which consists of 804 rooms out of the total of 1,608 to be delivered. The hotel has a height of 355 meters, a total of 82 storeys and includes the largest celebration hall in the Middle East. The second phase of the hotel is currently under construction and is due for completion in 2014.

• The fourth phase of Madinat Jumeirah has been approved and is anticipated to be completed by 2015. The AED 2.5 billion project will include a five-star hotel, a villa complex, restaurants, retail stores and a pedestrian precinct.

• Construction work on the USD 408 million Business Bay Canal project is expected to start in early 2013. The project, which consists of

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• Dubai International Airport is projected to reach a new record by handling more than 57 million passengers in 2012. The world’s fourth busiest international airport handled over 50 million passengers in 2011. This growth reflects the robust tourism sector and the continued expansion of local airlines.

• According to figures from the Dubai Statistics Center, Jebel Ali Free Zone (JAFZA) is the Middle East’s largest free zone, accounting for around 20% of Dubai’s economy and almost 13% of its labor force. JAFZA houses around 6,700 companies and 170,000 employees.

Valoran Real Estate Brokers Issue No. 2 - Feb 2013

Dubai Freehold Property History of Freehold Revolution May 2002 marked a remarkable page of freehold revolution in history of Dubai’s real estate, before which only nationals were allowed to own properties. It was then that the Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum issued a decree allowing foreigners to buy freehold properties. It was the adoption of freehold tenure in general and foreign ownership in particular that sparked the great real estate boom in Dubai residential property. The release of the second phase of Emaar’s ‘The Meadows villas’ saw almost a thousand people queue up to get into the ballroom at The Emirates Towers hotel. There was a fight to get through the door, and inside villas were snapped up off-plan; and all 700 villas sold in a matter of hours. A similar sell-out occurred when The Palm Jumeirah’s 2,000 villas went on sale in the autumn. This iconic 5km-long, palm-shaped island off the Dubai coastline became an international sensation from day one. And the trend continued to the extent that it brought great boom the prices of real estate properties of Dubai.

Why were freehold properties offered to foreigners?

to expats. A large number of foreigners are now considering Dubai to relocate in order to find better jobs and investment opportunities.

Moreover, business entrepreneurs and investors need space to establish their businesses. So, in order to accommodate these expats and attract foreign investors, the government started offering freehold property ownership, giving them the right to purchase or resell freehold real estates in specific developments of the city. To further enhance the worth of the city among second home seekers the government is also offering resident visas to property buyers on asset purchases. This significant rise in property demand and massive development projects also attracted number of local and foreign real estate investors across the globe to invest in Dubai property market, with the aim to earn good return. There are number of real estate consulting firms in Dubai that provide complete information about properties available for sale and rent. Valoran Real Estate Brokers is one of the most reliable real estate consulting firms that works to educate its customers in choosing the best properties that fulfill their needs.

Dubai’s government has identified that it doesn’t have enough oil reserves to depend on for revenue, and therefore made a smart decision to build on its history and position itself as the business, trade and financial hub between East and West. Eventually, with combined efforts of the government and developers, city has succeeded in achieving the hub status in the Middle East and diminished its dependability on oil. Thus, the state government started focusing on improving service industries in various sectors including real estate industry.

The city keeps progressing and developing various travel and tourism places to attract visitors across the world. The city has also become popular among job seekers across the world as it offers attractive lifestyle and job opportunities

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Dubai Marina Luxury wrapped in gold leaf Dubai Marina is a canal city in the Venetian tradition, carved along a two-mile stretch of the Gulf shoreline. It is located close to the Dubai Media City, the American University of Dubai and the Emirates Golf Club, and provides housing for approximately 120,000 people once completed.

Emaar announced the development of Dubai Marina with work still ongoing in many parts of the project. Among the most advanced portions of the scheme are the $534m Dubai Marina Mall & Marina Plaza, the latter due to be handed over in the autumn, the $240m Dubai Marina Residential Towers 7WX and the $130m Marina Wharf. The completed structures will cover 6.1 sq km and the development will be served by a 35-kilometrelong road network.

The development is intended to accommodate more than 120,000 people in luxury condominium towers and villas perched atop a dynamic 8

waterfront-retail promenade. The vision of Dubai Marina is to create an awe-inspiring city-within-a city that delights residents with its cosmopolitan, free-spirited atmosphere and unique, invigorating lifestyle. It is an urban centre on the water, comparable to the most exclusive waterfront developments in the world’s leading cities.

Property in Dubai Marina has been selling at a premium, according to recent media reports.

The luxury district, which is home to The First Group’s latest project, TFG Marina Hotel, has been commanding prices between 12-86% more than the initial price. A 120 square meter apartment recently sold for AED1.368 million, 20% higher than its base price of AED1.14 million, while a 89-squaremetre apartment in the same tower was bought for AED1.34 million, 67.5% over the reserve price of AED 800,000. Another property sold for nearly 86% above the base price, at AED2.42 million. Over the last few years it has fast become one of the most coveted areas to live and reside in the city.

Valoran Real Estate Brokers Issue No. 2 - Feb 2013

Some insights about Marina’s properties

bay. This is truly a luxury distilled to its very finest.

Marina Walk Towers

Marina Quays

The first phase of Dubai Marina comprises of six towers, three of which are named after “precious stones”, namely ‘Murjan’ consisting of 37 storeys, ‘Al Mass’ with 28 storeys and ‘Fairooz’ with 20 storeys. The other three are named after Arabic scents; ‘Mesk’ with 37 storeys, ‘Yass’ with 24 storeys and ‘Anbar’ with 16 storeys.

Distinctive design, uncompromising quality and an unmatched position make Marina Quays an ultimate home in Dubai Marina. Marina Quays is not just located on the water; it extends 20 meters over the water offering spectacular views and a waterfront experience that is unsurpassed.

Al Majara Al Majara Towers is a five building residence comprised of high rise waterfront apartment towers which overlook the largest bay of water at Emaar’s master planned Dubai Marina development. Al Majara 4 & 5, which are ten and eight storeys high respectively, offer unparalleled views of the Gulf and Dubai Marina.

Park Island Park Island is a four tower residential development comprising of Blakely, Bonaire, Fairfield and Sanibel. The towers within Park Island have been placed generously to allow for the inclusion of luscious parks and landscaped gardens, giving ample space to live. State of the art technology coupled with designer suite finishes; make for the latest in modern living.

Al Sahab Al Sahab is a spectacular twin tower, 44-storey, highrise, waterfront tower which directly overlooks the largest bay of water at Dubai Marina. All residents enjoy unparalleled views over Dubai Marina.

Marina Diamond The Marina Diamond Towers are a collection of six towers located at the Dubai Marina, and opposite to the Jumeirah Lake Towers.

Marina Promenade Marina Promenade, a premium residential enclave celebrates life in its entire radiant splendor. Nestled within the panoramic confines of Dubai Marina, it overlooks the widest and most scenic part of the bay and is ideally located opposite the prestigious Dubai Marina Yacht Club. The Marina Promenade comprises of six luxury towers and a set of villas that come replete with spectacular views of the

The property prices at Dubai Marina range between AED 644,000 to AED 21,000,000 with an average flat price of AED 3,373,605 while the average villa costs AED 5,640,000. It has been found that out of all the properties at the Marina, apartments and flats constitutes around 93.8% while the villas constitute just 6.2%. The average prices for various bedrooms in Dubai Marina are also given in the below chart. Moreover, looking from the rental perspectives, villas are not available for rents while the average rental value for flats and apartments is around AED 161,914 with the prices ranging from AED 75,000 to AED 500,000.

Flat/Apt.

Villa vs. Apartment

Villa

93.8%

0

25

50

75

100

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Valoran Real Estate Brokers Issue No. 2 - Feb 2013

International Property Markets United States- The Giant Real estate contributes significantly to the wealth of the United States and is one of the four “core” investment asset classes along with cash, stocks, and bonds. The total market value of nongovernment owned real estate was approximately $25 trillion in the mid of the year 2000, exceeding the stock market valuation by about $20 trillion. As a result of this size, the impact of the real estate industry on the overall economy is significant.

Analysis of the component parts of the U.S. Gross Domestic Product (GDP) indicates that the real estate industry (residential and commercial real estate) accounts for almost 20 percent of the country’s economic output.

The U.S. dominates commercial property markets, accounting for approximately one third of the world’s value. About 55 percent of real estate value was in private equity, 19 percent in private debt, 16 percent in public debt and 10 percent in public equity. Though the value of real estate is concentrated in developed areas, it is only about 6 percent of the total land area in the U.S. The largest shares of land use are water areas and federal land (about 23 percent), followed by forest land (21 percent) and then various agricultural uses. These numbers have changed only slightly over the past two decades. In terms of percentage change, however, developed land has increased by about one-third during that period.

Talking about numbers Although significant economic risks remain, fears of a “double-dip” recession have receded. In response, investors are shifting modestly to a more offensive position, rather than the highly defensive strategy of the past few years. During the past year, real estate transactions increased by over 50 percent, illustrating increased appreciation of the asset class. With economic recovery still in its early 10

stages, however, most investor capital is expected to remain focused on the safest core assets in the metro areas which are recovering at a faster pace. Nevertheless, some capital is migrating to the markets of the second tier cities to capture higher yield. During the recovery, capital initially chased apartments, given their early recovery performance, followed by major metro CBD office, which benefited from investor optimism. During the past year, capital expanded its targets to also include retail, which experienced a surge in activity.

Industrial appears to be the last sector to attract attention, with sales just beginning to surge. Real estate markets responded positively to the steady, although restrained economic growth.

The severe recession of 2008 and 2009 delayed or banished plans for any new construction that had been previously considered. Negligible new supply is a significant positive for core investors, as even a modest economic growth is producing noticeable improvements for demand in most markets and all sectors. With occupancy and rents on the rise, investors have noticed that yields have been bid down for top quality properties in primary markets.

This real estate recovery has been unique in that values for core properties have rebounded, in their early phases. With such front-loaded returns, expectations for future returns have moderated considerably. Nevertheless, increased capital is expected to target real estate in the coming year.

Some of the following trends are observed in the real estate market of the United States in the last year.

Valoran Real Estate Brokers Issue No. 2 - Feb 2013

• The home price declined by 25% in January 2012 from the peak reached by May 2007.

• Capital is rapidly returning to real estate, although from a low in 2009 that suggested near total collapse. Nonetheless, volume in 2011 nearly reached 2004 levels, which was a fairly healthy recovery year. Total volume increased 51 percent in the past year, reaching an estimated $186 billion, slightly above the 11-year average of $180 billion.

Real Estate Transaction Volumes

31%

• Americans have lost enormous wealth in the housing recession. As much as $7.2 trillion was lost since the market peak in 2007. The greatest annual loss of value was $2.7 trillion in 2008. $1 trillion in home value was lost in 2010 and $886 billion in home values lost in 2011.

35%

16%

2% 7%

9%

Private

Unknown

User/Other

Crossborder

Listed/REITs

Inst’l/Eq Fund

Capital Flows 2001-2011 ($Billions) 400 300 200

• There has been a crisis of confidence amongst the buyers due to weakness in the broader economy (unemployment, weak GDP growth, Japan, Greece/Europe, US debt downgrade), fear of continued high depreciation in home values and massive uncertainty over trajectory of home values with tax credit distortion.

100 0

1

2

3

4

5

6

7

8

9

10

11

Sources: Real Estate Capital Analytics and PREEF Real Estate.

As of March 2012

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Valoran Real Estate Brokers Issue No. 2 - Feb 2013

However, the market is expected to improve and it has been forecasted that the US housing prices are expected to rise by 30% by 2016.

Nadeem Walayat’s US House Prices Trend Forcast 2013-2016

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Valoran Real Estate Brokers Issue No. 2 - Feb 2013

Real Estate Investing: Lesson 1- How to get started?

If you are a new player who wants to invest your extra sum to earn some handsome income out of investing in real estate, then you should be aware that it takes some real planning to get started.

Buying property isn’t that difficult, though. You just need a financial and real estate investment plan, a lot of patience, and the willingness to do some hard work, and you’re on your way to building your own real estate empire!

Compared with most other investments, good real estate can excel at producing current income for property owners. So in addition to the longer-term appreciation potential, you can also earn income year in and year out. Real estate is a true growth and income investment.

If you have property that you rent out, you have money coming in every month in the form of rents.

Some properties, particularly larger multiunit complexes, may have some additional sources.

When you own investment real estate, you should also expect to incur expenses that include your mortgage payment, property taxes, insurance, and maintenance. The interaction of the revenues coming in and the expenses going out is what tells you whether you realize positive operating profit each month. However, over time your operating profit should rise as you increase your rental prices faster than the rate of increase for your property’s overall expenses.

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Characteristics of real estate investment Real estate is an asset form with limited liquidity relative to other investments. With the exception of Real Estate Investment Trusts, there are no markets where real estate properties are actively traded.

Direct real estate investment is capital intensive because it requires a lot of capital and it is highly cash flow dependent. Investors who can inject a large amount of money in real estate investment will ultimately be rewarded in the end. However, it is possible for investors to have negative cash flow for a long period of time that can force them to resell the property at a loss or go into insolvency.

Real estate investment involves a high transaction cost because of registration cost, agent fees and commissions, legal fees, insurance and transfer fees. In some cases the investor may be required to pay a percentage of cost as down payment.

Physical real estate is locationally immobile because the properties are located at a fixed

location thereby, causing mobility problem. A recent development is international real estate investment, where people increasingly buy property outside their own countries. However, such properties cannot be moved to the investor’s domestic country.

There is a heterogeneity problem in real estate investment because each property is unique in terms of its location, style and financing.

Real estate is durable because a building or a property can last for a long time if it is properly maintained and repaired.

Because real estate is not actively traded in the public market, there is lack of information on prices.

Prices have to be negotiated between the buyer and the seller. Lack of free flow of information and party negotiations make the real estate market inefficient. People with good negotiation skills can consistently reap abnormal profits.

Advantages of real estate investment

There are advantages associated with real estate investment. The advantages include leverage, direct control over property and diversification.

An important advantage is the possibility to use mortgage loans (leverage) to finance the purchase without putting up one’s own money.

Real estate investors have direct control over their property and can redesign, expand and modernize the property features to increase its aesthetic qualities and market value. It is also possible to own real estate properties in different locations or countries to benefit from geographical diversification and risk reduction, in case a natural disaster occurs in one location.

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Valoran Real Estate Brokers Issue No. 2 - Feb 2013

References http://www.propertywire.com/news/middle-east/uae-dubai-mortgage-curbs-201301117329.html http://www.propertywire.com/news/middle-east/dubai-real-estate-mortgages-201212317288.html http://www.propertywire.com/news/middle-east/dubai-property-protection-law-201212207265.html http://www.joneslanglasallemena.com/ResearchLevel1/JLL_DXB%20RE%20MKT%20OVERVIEW_Q4%20 2012.pdf http://www.propertywire.com/hot-topics/dubai.html http://www.guide2dubai.com/property/1517-Dubai-ranked-as-strongest-housing-market-in-the-world. htm http://www.zawya.com/story/Extra_tenancy_renewal_fees_allowed_Dubais_ReraGN_18012013_190134/ http://www.arabianbusiness.com/revealed-dubai-s-most-expensive-property-sales-486841.html http://www.ameinfo.com/dubai-build-worlds-largest-mall-mega-city-320109 http://www.bi-me.com/main.php?id=60711&t=1&c=9&cg=3&mset=1021 hqlibdoc.who.int/publications/2010/9789241598996_eng.pdf http://www.ameinfo.com/43838.html http://www.designbuild-network.com/projects/dubai-marina/ http://www.reidin.com/news/showNews/ae_reidin-reidinmediawatch-20121203-3/dubai-marinaproperty-prices-soar-.html http://www.meed.com/knowledge-bank/top-100-projects/Dubai-Marina http://www.reit.com/portals/0/PDF/Overview%20of%20the%20Commercial%20Real%20Estate%20 Industry.pdf http://www.rreef.com/content/_media/Research_US_Real_Estate_Strategic_Outlook_March_2012.pdf www.valoran.ae

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