Learning from the Dubai experience

The recent Cityscape Dubai Exhibition from Oct 16-18 showcased projects from 25 countries in over 700,000 sq m of exhibition space. The major Dubai (GLCs) government-linked companies — namely Dubai Properties, Nakheel, Eemar and Limitless among others, owned by the ruling Sheikh — had the best designed pavilions and the most impressive multimedia presentations. They showed how they used their oil money to raise their profile. It is the surplus oil money that is driving this city which has three foreigners every local. Parts of Dubai are like one huge construction site. A desert with oil underneath is being transformed with profits from extracting the oil.

Cityscape Dubai is perhaps one of the few in the world to be a business-to-business property exhibition where property sales are conducted in blocks and sites rather than single units.

Dubai itself is a city of contrasts. What started off as a small desert port has captured the imagination of the international property market place. This is a place to do business, to buy and sell real estate worldwide, to participate in the Middle East oil and gas industry and most of all, to allow the western business world and the Arabic business world to co-exist.

Up to 2003, foreigners were not allowed to buy long-term leases or freehold sites. But today, the major freehold developments which are controlled by the GLCs have seen massive increases in capital value and rentals under the "freehold with no restrictions" offered to foreigners. That alone must be a lesson to anyone wanting to "protect" their land for the locals.

Freedom to do business here is tempered by the fact that there are still no clear land laws to protect long-term investors. That is a problem waiting to happen. But happiness is the "flipper", where purchasers of properties under construction keep selling their rights at higher values. It is possible that a parcel in a development might change hands up to four times before completion.

Over the last six months, there has been concern about the long-term viability of the current real estate boom due to the sheer scale of the developments under construction. With the population of 1.4 to 2 million (official), the following are some statistics that merit consideration.

What started off as a small desert port has captured the imagination of the international property market place

Residential
Residential incoming supply — apartments

• Local zone (not for foreigners)
  = 11,894 units
  
• Foreign ownership zone
  = 134,838 units

Current rent for apartments

• Studio = US$18,000 per annum
• 1 bedroom = US$24,000 per annum
• 2 bedroom = US$34,000 per annum
• 3 bedroom = US$40,000 per annum

Offices
Current occupation is steady at 97%-98% in most buildings, but the total supply will increase from 1.6 million sq m to 5.6 million sq m by 2009. That could put pressure on rents in future.

Annual rents
Ranges from US$600 per sq m per annum to US$1,000 per sq m per annum.

Retail
In the retail category, there is currently 15 million sq ft completed with another 20 million sq ft under construction. The most successful retail centre is the Mall of Emirates at 2.23 million sq ft. The Mall of Arabia (Part I) will have 4 million sq ft when it is completed in 2010.
The malls are world class with indoor ski slopes, and international brand retailers. Dubai is now second in the world for recreational shopping behind Hong Kong.
The mantra for malls has been "Build them and tourists will come".

Hotels
September to May is the peak period for hotels in Dubai. Cccupancy drops during the summer months and Ramadan. But compound annual growth rate for tourist-visitors is still targeted at 15% per annum between 2006 and 2012 as they try and reach the target of 15 million tourists per annum. Approximately 30 hotels that have 2007 delivery dates remain under construction and only six hotels have been completed.

The following hotels will be completed over the next two years.

Hotels rates range between US$180 and US$250 per room per night.

Dubai is a great story. Its increasing exposure to international prominence has been due to the world-class airport anchored by the eighth largest airline in the world by passenger volume. Tourism dollars have been the catalyst for real estate investment. It has also become the new face of the Arab world in the modernisation drive by old Islamic cities to show that they can compete in the new world.

Cityscape Dubai is a microcosm showing the best of real estate in the Middle East and elsewhere. The Dubai GLCs are not afraid to trumpet international architects, international consultants and world-class managers as marketing tools to sell their real estate at high values.

Technology plays a large part in presentation since in Dubai, it is all about perception, perception, perception. Each of the GLCs try to outdo the other with the use of robots that walk, talk and sing love songs, to beautiful Ukranian dancing girls as well as inviting international artists like Shakira to perform in their stadium. No dance code here. Branding the Emirates Airline as the best airline in the Middle East and hiring the best brains in the world to achieve this objective has paid rich dividends indeed.

Despite having a huge foreign presence, there are only three main languages spoken — Arabic, English and Urdu. More than 75 different communities live and work in Dubai. Most of them are there for the money.

Malaysia at Cityscape Dubai was represented by Matrade, (still sticking to the 1970s formula of exhibition planning) and Nusajaya — a brave effort although it could have done better. Danga Bay and the Westin Langkawi's small pavilions were tucked away in a corner. The best Malaysian pavilion was Malaysia's SP Setia, with a pavilion to rival those of the Middle East. The branding effort was well received with offers to S P Setia for joint ventures in Omar, Abu Dhabi and Jordan.

Not surprisingly, Malaysia has a very positive image in the Middle East due to the very strong contributions by Malaysian leaders over the years to the Organisation of Ismalic Conference.

We could learn a large deal from the Dubai experience in how to turn a desert into valuable real estate. In fact, we have more advantages but we still seem to be afraid of letting go and aiming for the sky.

Despite our (MM2H) Malaysia My Second Home marketing and the "Malaysia Truly Asia" marathon, the most amazing endorsement for Malaysia came from an Iranian family. They have visited Malaysia during the months of August and September for the last two years and at the S P Setia Pavilion, said that they wish to live in Malaysia because the country is peaceful, the people are friendly and all the races seem to get along with each other on a daily basis despite some vocal minorities needing their 15 minutes of fame. The couple said they slept soundly every night, something they could not do where they are living currently.

That is something we take for granted here.

By The EDGE (By Kumar Tharmalingam - heads Hall Chadwick Asia, a corporate real estate advisory specialising in origination of quality commercial property for cornerstone investors in the region.)