Time to revisit Dubai real estate?
By Cecilia Chow
/ The Edge Property |
Nakheel, Dubai’s second-largest property developer, was in Singapore on Oct 22 and 23 for its first standalone overseas roadshow. The event was held at the Four Seasons Singapore and drew 150 visitors.
The master developer of Palm Jumeirah and The World — man-made islands located off the coast of Dubai and visible from space — Nakheel last came to Singapore to showcase its projects eight years ago, before the global financial crisis.
The Palm Tower will be linked to Nakheel Mall and the monorail station
Investors from Singapore and other Asian countries are said to have collectively purchased 500 villas, apartments and land plots worth AED900 million ($340 million) from Nakheel.
“Asia has been neglected by developers from Dubai for the last eight years, but it’s never too late,” Ali Rashid Lootah, chairman of Nakheel, tells The Edge Singapore.
Roll-out of skyscrapers
Two new projects launched by Nakheel in Singapore are located within Palm Jumeirah. They are The Palm Tower, a 52-storey luxury residential and hotel complex, and Palm 360, a landmark twin-tower development with 12,000 sq ft penthouses.
The Palm Tower is located at the centre of the trunk of Palm Jumeirah. The first 18 storeys will house five-star hotel St Regis Dubai. The 502 branded serviced residences will span the 19th to 47th floors. The serviced residences will be fully furnished and contain a mix of studios and one- to three-bedroom apartments.
Studios measuring 495 to 593 sq ft account for 334 units (66.5%) in the project; one-bedroom units measuring 1,015 to 1,085 sq ft account for 31% of the units. Only 10 units are two-bedroom apartments of 2,062 to 2,337 sq ft, and just two are three-bedroom units of 2,855 sq ft.
The freehold residences at The Palm Tower are priced at an average of $1,177 psf, with studios starting from $630,000. According to Lootah, the project is already more than 60% sold since its launch in Dubai more than a year ago.
Construction of The Palm Tower has already begun, with the project expected to be completed by 2018. The topmost floors will contain a mix of cafés and restaurants, including a rooftop restaurant, viewing deck and infinity pool.
The Palm Tower will be linked to a monorail station and the high-end Nakheel Mall, with 350 shops, a supermarket, a 15-screen cinema, medical facilities, department stores and a fitness complex. The project is also adjacent to a park with a 3.2km jogging track, and accessible to the beach.
Palm 360 was unveiled at Cityscape Global, held in Dubai in early September. A mixed-use complex, Palm 360 comprises two boutique luxury hotels, 252 one- and two-bedroom apartments and 12 four-bedroom penthouses of 12,000 sq ft. Each penthouse will also have its own private cinema, gym and swimming pool, as well as living, dining and entertainment areas and a maid’s room.
“It’s one of a kind, and we have a lot of interest in the project,” says Lootah of Palm 360, which is expected to soar above 220m in height. “It has what an investor calls ‘billion-dollar views’ — the whole palm in front of you and the skyline of Dubai city beyond.”
Record prices
Prices of Palm 360 have yet to be released, as the project is scheduled for launch in 1Q2017. Lootah is confident, however, that it will set a new record for luxury property prices in Dubai. Construction of Palm 360 is expected to take place in the middle of next year, and completion of the towers is scheduled for 2020.
Some of the most expensive penthouses and villas in Dubai are located at Palm Jumeirah. Last year, a British businessman of Indian origin reportedly paid £12 million ($20 million) for a luxury six-bedroom villa at Palm Jumeirah. Called M State, the 13,000 sq ft villa includes a 167ft-long private beach, a 55ft infinity swimming pool and private cinema. It is considered Dubai’s priciest residential property so far.
The most expensive home in Dubai, listed at US$49 million ($68 million), is a penthouse at One at Palm Jumeirah. When completed in 2017, it will have a built-up area of 25,000 sq ft, seven bedrooms, eight bathrooms, and a 16,000 sq ft terrace. Amenities include a state-of-the-art security system, spa, gym, swimming pool, kids’ area, club houses and fine dining. The property will have views of Bluewaters Island and the world’s tallest ferris wheel, the Dubai Eye.
Market correction, oversupply
In 2015, average villa prices in Dubai reportedly fell 11% y-o-y, while average apartment prices corrected by 8% y-o-y, according to a report by real estate consultancy Asteco. Average rental rates saw a dip of just 1% over the same period.
Last year saw 13,500 apartments and 800 villas added to Dubai’s residential supply. A further 22,000 apartments and 7,700 villas are scheduled to be completed in 2016. The large pipeline for 2016, coupled with demand slowdown and continued low oil prices, will put pressure on both sale prices and rents until 2017, cautions Asteco.
In 3Q2016, 5,400 residential units were completed, which marked the highest quarterly completion since 4Q2012, when about 6,200 units came onto the market, says JLL in its 3Q2016 Dubai market report in October. Another 11,000 units are scheduled to enter the market in 4Q2016.
With no change in either rents or prices of apartments in 3Q2016, the y-o-y decline in rents was 4%, compared with the y-o-y decline in prices of just 2%. The pace of decline also seems to be moderating in the villa segment, where prices and rents fell a marginal 1% q-o-q.
“It appears that the residential market has now reached the bottom of its current cycle,” says JLL. While prices and rents are expected to recover in 2017, the pace of this recovery is limited by economic uncertainties and the volume of potential supply, adds the property consultant.
There was speculation earlier this year that another property bubble was in the making, but Lootah disagrees. “There are enough measures in place to prevent that from happening.”
Post-crisis, the government introduced a hike in transactions fees from 2% to 4%, reduced loan-to-value ratio for mortgages for both locals and expatriates, and increased the supply of homes in an effort to moderate prices. Developers have also tightened their due diligence and the screening of buyers to reduce speculation, adds Lootah.
Restructuring complete
“The Dubai property market has matured,” observes Lootah. During the global financial crisis, real estate prices in Dubai, along with the rest of the United Arab Emirates, plunged 50% from the peak in 2008 to early 2010.
Dubai World, the government-owned investment company and former parent company of Nakheel, took a severe hit, given the fall in real estate prices. In March 2010, the government appointed Lootah as chairman of Nakheel, which was spun off from Dubai World the following year.
In 2011, Nakheel agreed to a US$16 billion debt restructuring and deferred several high-profile projects, which included two bigger Palm islands — Deira and Jebel Ali, which was supposed to be up to seven times the size of Palm Jumeirah and whose construction is still on hold.
The last six years have been a challenging time for Nakheel, admits Lootah. In August, however, Nakheel declared itself debt-free after repaying AED4.4 billion to sukuk (Islamic bond) holders. In August 2014, Nakheel had pre-paid all AED7.9 billion of its bank debt four years ahead of schedule.
Nakheel also delivered on its commitment to property investors. Those who purchasd its properties prior to the crisis have seen their values increase. Lootah cites the example of villas in Jumeirah Park that were sold from 2007 to 2008 before the crisis at prices of AED2.4 million to AED3 million. At the peak of the market in 2014, prices of these villas hit a high of AED5 million. With the recent market slowdown, the villas are now worth AED3.5 million to AED4 million. “These investors made money by being patient,” says Lootah. “Even if there’s a slight correction in the market, prices are still higher than what they paid in the 2007/08 pre-crisis levels.”
Growth, diversification
Last month, Nakheel announced a net profit of AED3.91 billion for the first nine months of FY2016 ended Sept 30, up 8.3% y-o-y from AED3.61 million. The company recorded a net profit of AED955 million for 3QFY2016, up 22% y-o-y from AED781 million.
The growth in net profit reflects stable market conditions, according to Lootah. Nakheel currently has more than 2,300 units under construction at various projects. The developer has also pumped in AED40 billion to expand its retail, hospitality and residential leasing portfolios as part of a diversification strategy to strengthen its financial position.
Around 13 million sq ft of lettable space is under development at new, large-scale retail and mixed-use projects across Dubai. Its hospitality portfolio contains 16 hotels and serviced apartment complexes with a total of more than 5,200 rooms. Nakheel has 17,000 fully leased residential units, and it intends to double the portfolio by adding more than 18,000 new units.
While Jebel Ali is still on hold, Nakheel has already started developing projects on Deira Islands, which has a 15.3 sq km area and a 40km coastline. “It’s also supposed to be the shape of a huge palm tree that’s much bigger than Palm Jumeirah,” says Lootah. “But we decided to develop the part that has been reclaimed first.”
Palm Jumeirah, which is 75% developed, has 30,000 residents. The archipelago is expected to have double the number of residents when all the developments are completed. More than half the buyers of residential property at Palm Jumeirah are foreign investors, primarily from the UK, the Indian subcontinent and Russia, says Lootah. About half the residences are owner-occupied, with the rest used as holiday or second homes.
Lootah believes this is a good time for Singaporeans and other Asian investors to take another look at Dubai property. Average rental yields in the emirate are 7.6%, much higher than in Singapore, he says.
This article appeared in The Edge Property Pullout, Issue 753 (Nov 7, 2016) of The Edge Singapore.
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