12th August 2012

Future Perfect

It’s the million-dollar question. Has the Dubai property market turned a corner? Hesham Al Qassim pauses and his face breaks into a wide smile. “What do you think?” he asks. I mutter something unintelligible about increased demand for premium areas of the city.

Al Qassim’s smile widens. “The market is starting to roll over again,” he corrects me. “I think it’s the right time for it. The market has to move at some point; it’s four years from the time that everything started to slow down, and I think that prices have gone below the right level. It’s the right level to buy again.”

It’s fair to say that nearly every self-proclaimed expert has had his opinion on the state of play in Dubai’s real estate market since the bubble burst in 2008. But then again, Al Qassim is in a far better position than most to give a transparent assessment. He is the CEO of Wasl Asset Management, which looks after the property portfolio owned by the government’s Dubai Real Estate Corporation (DREC). Put another way, Al Qassim heads up the emirate’s biggest landlord.

Wasl’s reach stretches throughout Dubai; from the older parts of the city to New Dubai, its leasehold footprint covers residential, commercial and hospitality projects. As a result, Al Qassim’s opinion matters. And taking a look back at Wasl’s deliveries during the four years between 2008 and now, it’s clear that the firm hasn’t kept quiet — adding almost 10,000 units to its portfolio in what has been undoubtedly a tough time for the market.

In fact, while other developers stayed well clear of the market, Wasl kept on adding new properties, after a short hiatus in 2009. That year, it added 1,154 units, but this figure was ramped up to a sliver under 4,000 units in 2010, 3,191 units in 2011 and 414 units already delivered this year.

“In 2006 and 2007, the plan and the view was that we needed to have more residential for medium-income people; that was delivered between 2008 and 2009 and was leased out very quickly,” Al Qassim says. “Then we had the requirement that for more villas to be developed in Jumeirah, and again, that was successful.”

Those efforts appear to have paid off. Of the 25,689-strong portfolio currently under Wasl management, Al Qassim says that just over 98 percent is occupied. Part of the firm’s success has been down to its diversification strategy.
“In 2010 and 2011, we predicted that the hospitality and leisure sector would really need a lot of new projects,” he adds. “So we announced last year a list of our leisure projects, which will take us through 2012 and 2013.”

As a result, Wasl has several mixed-use projects in the pipeline (see box) — two in Jumeirah and one in Deira. That move looks to have been prescient, given the recent performance of the hotels sector in Dubai. Last week, Ernst & Young reported that revenue per available room (RevPAR) in the emirate rose by 12.7 percent in the first half.

“Starting from June 2011, a year back from today, the local hospitality business has really picked up,” Al Qassim points out. “The RevPAR and average price for hotel rooms has increased maybe 30 to 35 percent. Our hotels currently enjoy occupancy rates in the eighties, which is why we are working at the moment to expand a couple of them.”

Those expansion plans include two phases of construction at the Le Meridien Airport Hotel, adding 197 rooms plus a ballroom and special assembly hall. Elsewhere, the company is handing over units in its landmark Jumeirah development, Wasl square.

“The retail demand [for Wasl square] has been huge — we have leased all the units in no time,” Al Qassim says. “In fact it was a difficult selection [to pick the clients], as the number of applicants was much more than the units available. We are due to launch the second phase [which consists of 26 one-bedroom and 114 two-bedroom apartments] and have already registered significant interest in them.”

In fact, it seems that there is little about which the CEO is pessimistic. When asked whether real estate prices in the emirate can reach the highs of 2008, he does not hesitate.

“They might get higher, it depends on demand and supply,” he says. “We shouldn’t forget also that there is a normal percentage hike as a percentage of inflation.”

That is a bold statement, bearing in mind that most estimates claim that property values slid by around 60 percent from their peak four years ago. Right now, Al Qassim says that current prices represent “a great market opportunity for us to expand our portfolio”.

That assessment is in line with recent optimistic reports about Dubai. Last month, Bank of America (BofA) Merrill Lynch claimed that real estate in the emirate was now a worthy investment, based on its projections that the population could double by 2030.

While supply is still overhanging large parts of the market — especially in the non-premium areas such as Discovery Gardens — BofA Merrill Lynch’s argument indicates that it may be time for the city’s developers to get back on track.

Already this year, Emaar has dipped its toes into the market, selling 200 apartments in the Views, and buying a plot of land in Al Qudra to expand its landmark Arabian Ranches development. The company’s quarterly results saw net operating profits rise by 45 percent.

When questioned whether Dubai can reach the population levels projected by the US investment bank, Al Qassim, again, does not hesitate.

“I hope it will triple,” he says. “And I don’t think the idea of doubling the population is something impossible. It’s really very possible — the real estate assets are available and the market has the appetite.”

But, naturally, challenges do remain. While prices do appear to be strengthening, the lessons of the Dubai property bubble remain. Developers may be keen to get going on premium areas, but investors are still worried about the offplan crisis that resulted in hundreds of projects being cancelled, with many of those developments yet to be completely ironed out.

Al Qassim sees the major challenges as being related to location, as well as a need to understand what market demand will be like by the time that projects are actually completed — hence Wasl’s move into hospitality.

“The real challenge for real estate today is to select the right location build, plus the right sector,” he points out. “The market changes, and the development span is around two to two-and-a-half years. Today you might think that the demand is residential, but by the time you are done, the demand has shifted to commercial. Then it will be difficult for the developed to sell.”

One solution could be mergers, Al Qassim says. In Abu Dhabi, indebted developer Aldar is currently crunching the numbers with local rival Sorouh, in a move that could lead to the UAE capital’s first super-developer. It’s a move that could work well in Dubai, which plays host not only to Emaar and now-government-owned Nakheel, as well as Union Properties and Deyaar, among others.

“Yes, if it is in the interest of the companies, why not?” says Al Qassim. “Normally the merging and acquisition of companies is an example of good practice. I don’t have any idea of anything like that happening in Dubai, but I tell you that it is a good move. If it adds value for both companies, then why not?”

Whether or not there is consolidation among Dubai’s developers, the emirate’s largest landlord looks set to keep its preeminent position as the market slowly starts to return.

Projects in the pipeline

Al Muraqqabat Development — Due H2 2013
The project in Al Muraqqabat consists of three buildings. The first building contains 84 furnished apartments, the second building contains 210 hotel rooms (Hyatt Place), while the third is a mixed-use building with 133 one and two bedrooms and studios and a commercial area of more than 8,000 square feet allocated for retail outlets.

dar Wasl Project — Due H1 2014
dar Wasl, situated in Al Safa area opposite of Al Safa Park, boasts a traditional design inspired by Moroccan architecture. The project includes 166 villas and commercial spaces covering an area of 60,000 square feet, a residential building with 112 units and an integrated health club featuring a swimming pool.

Jumeirah Markets — Due H2 2013
The Jumeirah Market project includes a diverse mix of commercial and residential units. The project, located in Jumeirah, includes 20 one- bedroom apartments, 38 two-bedroom apartments and six three-bedroom apartments with access to a health club featuring a swimming pool as well as access to roof garden areas. The project will also include about 100,000 square feet designated for retail stores.

Al Maktoum Hospital Area Rehabilitation Project — Due H2 2014
This is a cultural project that aims to convey pride in the UAE’s tradition and culture by re-designing the area that hosted the first modern hospital in the emirate, Maktoum Hospital. The focal point of the themed mixed-use master development will be a museum that will present the evolution of health in Dubai by displaying original instruments and historical documents from the hospital. The development will also comprise a traditional Arabic souk with specially selected shops and restaurants and beautifully designed urban spaces which will help create a thriving multi-cultural environment. The development will be supported by a hotel, a serviced-apartments tower, as well as commercial and residential buildings. The development aims to attract both tourists and residents looking for a unique community in which to live.

Jumeirah Beach Club — Due H2 2014
Gardens cover 40 percent of the Jumeirah Beach Club Project which consists of a club featuring physical fitness rooms, tennis and squash courts, a club for children and a range of retail shops. It also includes a boutique hotel with 188 rooms including twelve special suites, 78 deluxe suites, a royal beach villa, six deluxe villas and five beach villas. The hotel also houses a multi-purpose hall and a business centre.

A man with many hats

Will UAE banks find it tough to cope with newly mandated regulations from the central bank to restrict lending limits?
"It’s a little bit tough – new rules are always difficult for the banks to implement. But the regulator doesn’t impose things suddenly. There is always debate, and there is always compromise. But if you ask me whether it is wrong or right – it’s right. Whatever regulations are coming out are coming from the global banking system."

Will local provisioning levels rise during the course of the year?
"It depends, from bank to bank. The provisioning level that the banks have taken today are exactly equal to the opportunities that were there in the good times. If you ask me how the future will look? I don’t think provisions have really been growing, but it depends on people’s judgement. Conservative people take huge provisions, and non-conservative people maybe act differently. So it’s a matter of judgement."

How would you assess the health of the banking sector in the UAE today?

"Banking is going well this year, they have the right level of lending. Things are falling back into place slowly. Normally, when an economy settles, it will start from the finance sector. If the real estate market is doing well, then so are the banks. If airlines and the hospitality sector are performing well, then so are the banks. Whatever excess funds there are, are deposited with the banks."