Dubai surprise

While one property investor is seeing an increase in distressed residential sales in Dubai, the government is looking at ways to shore up the country’s real estate markets and attract more foreign capital. By Aaron Lovell.

The hot Dubai City property market has long been the subject of breathless exposes, expansive photo spreads, investor speculation and all-around awe. But according to some, at least one corner of the market is seeing an increase in the number of distressed sellers.

No, it isn’t the luxury hotel market—the Burj Al Arab and The Palm Islands are still pulling in expatriates, businesspeople and affluent tourists from the world over. According to the Gulf News, one UAE-based property investor said that distressed sales of small luxury apartment portfolios and low-rise residential buildings had increased over the passed year.

The article, which quoted Heather Wipperman, the chief executive of Dubai-based Investment Boutique, went on to say that the sellers were usually expatriates or local investors looking to buy low and sell high—and ending up unable to make the next payment on their property.

“Not only has the volume [of distressed sales] been increasing, but I think the level of urgency has been increasing,” Wipperman told the newspaper. “It is difficult to give percentages of housing stock falling into low premiums [zero to two percent], but the numbers are rising.”

Since the property markets in the emirate opened up in 2002, when regulations were relaxed allowing foreigners to buy property in selected areas of the city on a freehold basis, real estate in Dubai has become a hot commodity, particularly as the emirate’s economic star has risen. By 2004, residential prices were growing at a clip of 10 percent per year.

But some now feel prices are reaching a plateau as more and more product is dumped onto the market, though demand reportedly remains strong. Still, it’s not all storm clouds over the Persian Gulf. As the market matures, the government of Dubai is also looking at tools to help investors and vehicles to attract more foreign money.

Last week, the Dubai Chamber of Commerce called on the government to create a real estate price index to help measure the Dubai economy. The chamber has reportedly been compiling property data, but feels the government could do a more effective job of creating an official standard.

A recent study by the chamber found property—perhaps the most important part of Dubai’s economy—closely linked to the rest of the country’s overall financial health. An index would help investors value their commercial and residential real estate, as well as provide information for a vast array of government, economic and property-related uses.

In addition to the issue of an index, the government is also planning to launch real estate investment trust legislation and has issued to public papers to discuss how the REITs would be operated and established, as well as how foreign funds could be marketed in the country.

Despite possible blips on the horizon, Dubai’s property market continues to be a thing of developing-market wonder. It could continue to be a worthwhile investment if the sector continues to institutionalise with indices and REIT legislation.