Monday, January 30, 2006

Blowing bubbles?

Thinking about buying property in Dubai? Think again! I won't touch buying property here. I went round to look at the low-level flats at The Greens. At the time these were out in the back of beyond. They are now in the middle of a forest of high-rise construction. Even if we assume that Dubai can find enough people to stump up over Dh 1 million each for the apartments at Jumeirah Beach Residence, Dubai Marina, et al there remains a major issue concerning transport. The much-trumpeted light rail transit will run past the Jebel Ali Marina developments into Bur Dubai. But I for one would be unwilling to walk half a mile from my apartment to the station in 45C and 90% humidity, only to have to taxi from the central station to my office that is nowhere near the railway.

So most people will in fact drive. Sheikh Zayed Road, already between 4 and 6 lanes each way, already runs at capacity most of the day. It isn't rocket science to imagine what will happen once the new residences are all occupied:

0600 - seventy-five thousand alarm clocks go off;
0630 - seventy-five thousand cars exit the underground car parks and all hit SZR within ten minutes of each other;
0830 - everyone arrives in Dubai, some 15km up the road.

So in the long term, what is likely? I think the occupants will be left with luxuriously- appointed concrete cubes that no-one wants to buy because of the traffic nightmare. Result: collapse in property values, massive negative equity, ghost town.

There are no controls on the maintenance charges in these alleged 'freehold' properties. At the moment the annual fee is around Dh 10 per square foot - some Dh 15000 per annum for a moderate 2-bed flat. But what if next year some bigwig decides to set it at Dh 15/sq.ft? Or Dh50/sq.ft? 'Freeholders' who don't pay for over a year can be thrown out. It says so in the small print.

And the same goes for the "guaranteed residence visa". It's currently Dh 5000 for 3 years for the owner and family. What if it becomes Dh 5000 per year? Or Dh 10,000? Or per person? Again, no legal guarantees or assurances currently exist.

There is also proposed legislation to prohibit expat owners from renting their villas and apartments. Basically, under the proposed scheme expats could owner-occupy, but rental income would only be permitted for Emirati landlords. This would probably to kill a lot of the market at a stroke. All tenancies have to be registered with the Municipality. If you don't go and register, they send the boys round and pull the fuses so you get no power. So illegal tenancies are very dodgy ground indeed. Let us see if this particular piece of proposed goal post movement ever comes to pass.

Some of the towers will ultimately go 'commonhold', in which the owner- occupiers each have a stake in the building as a whole. I think in the US it's called a condominium. Where this has been done in Dubai, the original developer has retained 51% of the apartments and kept them empty just so they can veto any attempt by the occupiers to control rises in ground rent.

Politically, there is still no decision on allowing expats to own property. There remains therefore a slight but theoretically possible chance that Dubai might say, "No" and throw everyone out. It happened in Zimbabwe solely on the basis of how much melanin an individual owned. I am not suggesting that this scenario is likely, but it is possible.

A friend of a friend has made a tidy sum buying and re-selling houses and apartments off-plan. The developers have now caught on to this, and demand a cut of the resale price before they'll permit the sale to go through. Funny sort of 'freehold', isn't it? When asked if he was going to buy or had bought one to live in, his answer was an emphatic, "Good God, no!"

Incidentally, the local business papers have started running stories along the lines of 'when (not if) will Dubai's property bubble burst?' There was also a scare-story concerning how these buildings may be shoddily built and could be candidates for demolition in 30 years or less. My old rented villa in Doha was typical of the state a 30-year-old Gulf building could be in. I certainly wouldn't want to be 30 floors up in one. How much will an apartment be sellable for in 2030 when the mortgage has been paid off?

The Hydropolis, Dubai's underwater hotel, promises to be the largest, whitest elephant on the planet.The probability of being able to see anything out of the windows appears somewhat small. Nakheel, the outfit responsible for the Palms, had a choice of setting beach slopes at 1:10 or 1:6. With 1:10 the beaches would be stable, but at 1:6 they'll constantly erode and have to be replenished. Given the same waterline footprint in both options, which one gives the larger developable area? And as a consequence, which one did they choose? Nakheel is already on record to state that there will have to be a constant dredging regime, working on a roughly five-year cycle. So all these promises that the underwater environment will recover once the construction is over are so much hogwash. Nakheel is also on record as stating that, regarding the new developments, "Feasibility is not a must." And that's not rumour or hearsay; I was at the presentation. The same guy went on record to say that an environmental impact assessment was not carried out because there was nothing there before and therefore nothing to compare to an 'after' condition. No mention of the coral, dugongs or Jebel Ali nature reserve, then.

However, I may be wrong. Let's face it, that monument to conspicuous consumption Ski Dubai - yes, with real snow on an indoor slope a quarter of a mile long - seems to be successful. Wait until summer, when it will become the coolest part of Dubai both figuratively and literally. I wonder if the workmanship will be able to stand the 60-degree temperature difference between the inner and outer skins?

At the moment Dubai is extremely bullish about the whole development issue. Come and see this particular house of cards before it suddenly collapses around everyone's ears.

1 comment:

Dubai Property said...

I think the ever growing demand for prime property has also engulfed the emirates and in the last few years, prime locations in the emirates like Dubai have seen a real estate boom. Considering that Dubai was a highly competitive but low priced market, this real estate
boom is the last thing that the government wants. A lot of experts feel that Dubai is heading pretty much the same way where some of the
Asian markets have headed in the past, towards overpricing. The reason for this is pretty simple. There is not enough supply to meet the demand in Dubai.


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