Foreign investors who had huffed and puffed local property levels to stratospheric levels between 2005 and September 2008 made a beeline for the exit doors. Developers who it seemed were there just to announce a new project every other week found they were staring at a vacant marketplace. Genuine investors who came on board the realty show in the hope of staying for the long term found that the promise of prestige projects with celebrity neighbours was about to become a living nightmare.

For sure, UAE’s property market — and its then stakeholders — can blame it on Lehman. But a full five years down the line, it has a lot to be thankful for as well.

Maturity

For what the fallout did was rush the UAE’s realty — and particularly Dubai’s — to a certain maturity, a status that would have taken a lot more years to achieve if the Lehman Brothers closure — or the Great Recession — had never happened.

Sure, there are those who believe that a massive correction on the lines of what the market saw in 2009-10 would still have been triggered by some spark or the other. There was no way the property values then could have been sustained for much longer.

“One effect of the financial crisis is to have accelerated the maturation rate markedly and things have definitely changed for the better,” said Mohanad Al Wadiya, managing director of Harbor Real Estate. “While speculation still does exist, the market is now comprised of a greater proportion of wary and astute buyers who are more adept at making decisions based on market fundamentals and investment logic.

“Meanwhile, those developers who survived the recession have learnt that realistic planning and demand estimation is paramount to long term profitable growth. The industry, while improving, is still showing the effects of poor planning.”

Regulatory framework

That is why the authorities are constantly at the back of developers to get their games in order, more so as transaction levels that spiked following the Arab Spring have now settled to market-sustainable levels. Attaining maturity requires that the property has a certain depth in terms of project offerings and, just as important, got the regulatory framework to go with it.

And, where possible, regulations are being put in place that would even out the playing field for investors and developers alike, which includes a recent decree by Dubai that allows investors a chance to recover funds stuck in projects that never materialised.

This in itself is a seismic change from the situation in the pre-crisis era, when the deck was heavily loaded in favour of developers and where a sales and purchase agreement was but an instrument for investors to part with their monies and no questions could be asked.

“The spate of new rulings has made it easier for valuations to be more transparent,” said Robin Teh, country manager at the property firm Chesterton. “However, until a formal Valuation Law is passed which states the do’s and don’ts and having only regulated and qualified valuation companies to practice here, this market is still a challenge in transparency.”

Precedents

As for the liquidation of defunct projects and subsequent fund recoveries, Teh added: “There are definitely precedents in other markets especially mature ones like the UK, US and Singapore to follow. There is no ideal way as each country has its own culture and bureaucracies to deal with. However, it is something that Dubai must implement and amend and improve as the market changes. I would always say that having something is better than nothing at all.”

The fact that Dubai decided to go ahead with the project liquidation move now is noteworthy. It came at a time when not many were expecting it. Plus, the market was on the upside and upscale project launches were again becoming a feature of the landscape. It would have been easy to ride on the current momentum and not let the past be a distraction.

But that Dubai issued such a decree which has investor rights at its core should be duly noted. Clearly, it is on the regulatory side that the most transparent changes are being effected within the property market. Here too a link — tenuous or direct — can be drawn between the Lehman collapse and how authorities — here and elsewhere — are trying to protect the rights of investors in their exposures to varying asset classes.

Confidence

Specific to the UAE property market, tighter regulations have been in sync with efforts to make it easier to come in — and exit — a property investment. “Regulation is improving all the time with investor protection laws and bodies being created, thereby instilling more confidence in the market and the longer term benefits are becoming more apparent,” said Helen Tatham, head of UAE residential at Knight Frank.

“The market is rising and has risen over the last 12 months to the extent that, in the majority of cases, an investor can claw back his original investment at the very least. The process of exit is simple and inexpensive compared to other countries… at this point in time it is fairly straightforward.”

The “For Sale” signs are back on and have been ever since the Arab Spring set off a trail of uncertainty in its wake. In such an environment the UAE offered certain sureties and its real estate sector was able to take full advantage.

But the marketplace does not want to see a return of speculators. Barriers are being erected that would lessen their impact.

Transaction fee

“The imposition of a sales transaction fee based on a time-dependent sliding scale should have the desired effect,” said Al Wadiya. “The transaction fee would work so that it is much more expensive for a seller to sell a property within one year [perhaps with a fee imposed by the Dubai Land Department of 15 per cent of the selling price] versus a property sold after five years [perhaps with a fee of 2 per cent of the selling price].

“This type of mechanism has been introduced in markets such as Hong Kong, Singapore and Thailand to discourage the “flipping” of properties.”

Thus, from a wider angle, the Lehman Brothers legacy has been one of positives for the UAE’s property market. Lessons were learnt so that the future investors need not be taken in by empty sales pitches from developers or estate agents. Contract clauses have to be followed by all stakeholders.

Lehman Brothers has done its part.

Source: http://gulfnews.com/business/property/uae/developers-get-back-into-sales-mode-1.1228680

“Service charges have started playing an important role in the decision making process for end-users, which is why moving forward with the buildings getting older, the charge will be questioned if increases do not match the services,” said Niraj Masand, director at Banke International. “Many buyers could opt out of certain buildings due to the service charges.

“It could be the recessionary trends of the last three to four years that had service charges remain steady or in some cases even dropped. However, moving forward, due to increasing costs it is expected that service charges will increase.”

It is also for the future to tell what the presence of newly launched developments will have on the service charge regime. Will the new projects come in at a much higher tariff than the existing ones? If yes, can service charges at existing buildings remain impervious?

Only time will tell.

Source: gulfnews

So, while all the key fundamentals are pointing upwards, there is still one key indicator that is holding steady or has actually taken a dip – service charges. So much so, the setting of service charges – and collecting on them – has become less of a point of friction between property management companies and homeowners.

What explains this seeming anomaly? The answer is obvious – owners associations are now taking complete control over the process from developers and their nominated facilities management companies.

“The fundamentals of ‘owners association management’ are now in place with most freehold communities having understood the basics,” said P. R. Vijayakumar, managing director at Pacific Owners Association Management Services. “The fact that owners themselves control the management of buildings and decide their own service charges has been accepted by the communities.

“Many homeowners in Dubai have taken control of their properties and with Rera (Real Estate Regulatory Agency) registration of owner associations about to happen, it will enable them to take full financial control as well. This will end an era where developers controlled freehold properties.”

There will be an estimated Dh3.3 trillion of construction developments underway across the GCC between now and 2020 according to a statement by UAE-based building material company Danube released this week.

The statement cites a report by Kuwait Financial Centre (Markaz).

Real estate projects account for an estimated Dh1.89 trillion of the current developments across the GCC, Danube stated.

Andrew Jeffrey, Director, Infrastructure & Capital Investments at Deloitte Middle East, said demand for housing, road, and rail projects would drive the construction sector.

The Global Built Asset Wealth Index, released on Monday by EC Harris, said UAE citizen enjoy some of the highest levels of built asset wealth. The alternative economic indicator valued private and public property. including infrastructure of 30 different countries against each other. The UAE ranked 25th overall and is expected to jump two positions by 2022 as its built wealth asset increases to $1.69 trillion. The UAE will be joined by Singapore and Brazil as the expected highest climbers over the next 10 years.

Source: http://gulfnews.com/business/economy/uae-built-asset-wealth-1-trillion-1.1226628