land sterling v2

EDITORS NOTE

While 2013 ended at a clear euphoric note for Dubai, this year’s closing is laden with skepticism about how the local and international markets will move in 2015. As the strongest non-oil economy in the region, few analysts doubt Dubai’s resilience to the on-going oil price tumult. Investor unease about the region translated into a significantly volatile DFM in December 2014, yet Dubai’s existing fundamentals look strong to weather any near term headwind.

By end of 2014, the number of residential transactions (completed properties) registered by Dubai Land Department declined by 28% compared to 2013 which saw close to 17,000 transactions being done. Investor appetite waned off considerably in H2 2014 as fewer bargains were available due to double digit price rise in most communities. Off plan market continued to be active as four new projects were launched in Dubai in December 2014.

Nida Rivzi

Magazine Credits

CEOYoucef Betraoui, BSc (Hons), MRICS

Managing Partner

Hamza Betraoui, BSc (Hons), MRICS

Managing Partner

Abdul Betraoui, (ICIOB)

Editor and Analyst

Nida RizviInquiries:

Building Surveying

Stephen Quinn, [email protected]

Plant & Machinery

Ruka [email protected]

Property Valuations

Pawel Banach, [email protected]

Reprint Policy:

Copyright law prohibits any manner of reproduction of any part of the magazine, except with the written permission of Land Sterling Property Consultants. For reprint permission, please email at [email protected].

Copyright © 2015 Land Sterlingwww.landsterling.com

Disclaimer:

While every effort has been made to ensure the accuracy of the data and other information in this publication, Land Sterling does not offer any warranty or representation, expressed or implied, to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions. The information, opinions and forecasts set out herein should not be relied upon to replace professional advice on specific matters. Land Sterling will not be held liable for any loss occasioned to any person acting, or refraining from acting, based on information in this publication. All information included in this publication is based on Land Sterling’s judgment, as on the date of the publication and is subject to change without notice. Land Sterling has no obligation to update, modify, or amend this publication or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Copyright © 2015 Land Sterling

4 FEBRUARY 2015 - ISSUE 001 - www.landsterling.com

TABLE OF CONTENT

To Be or Not To Be: The Argument about Rent Controls in DubaiLand Sterling discusses in detail the hotly debated topic in of ren-tal controls in Dubai taking in account all perspectives................6-9

FEBRUARY 2015 - ISSUE 001 - www.landsterling.com

• News Round-up January 2015..............................................10• Cost of Living Rises in the UAE..................................................• Dubai and Abu Dhabi Prices Stabilize.......................................• Infrastructure Projects worth AED 3.1 bn in UAE.....................• Tilal City: New Project in Sharjah................................................• Abu Dhabi to Have New Affordable Projects...........................• Building Completions increase in Abu Dhabi..........................

Featured Properties of the Month.........................................................................................................12

Reality Bites.........................................................................................................13

5FEBRUARY 2015 - ISSUE 001 - www.landsterling.com

COMPANY PROFILE

Real Estate Sales and Rentals:

Land Sterling’s professionals are here to accelerate your search through our specialized expertise and unparalleled ability to deliver. Our Agency team provides you with objective and independent assessment at all stages of your search, encompassing everything from the purchase, sale or rent of your property, to effective Sales and Marketing strategies, to administrative procedures, transfers and after-sales service.

Property Valuations:

Our qualified property experts provide accurate and high quality property valuation and consultancy services for a wide range of purposes. Clients benefit from real estate valuation services that are integrated from a cross-section of practice and industry experts across the firm, enabling us to offer interdisciplinary solutions for complex business needs. All our property valuation reports are prepared in accordance with the Valuation Standards of the Royal Institution of Chartered Surveyors (RICS) and other recognized international standards such as International Valuation Standards (IVS). Furthermore, we are an RICS Regulated Company. This means we pride ourselves in applying internationally accepted Best Practice” procedures.

Plant and Machinery Valuations:

Land Sterling specializes in plant and machinery valuations for different operations. We specialize in the valuation of plant and machinery of all asset types across the industrial sectors for small, medium and large-scale organizations in the Middle East and North Africa. Our valuers have an established reputation with expertise and knowledge; give special attention to detail about each and every plant, equipment or production line. Our valuation services are in compliance with international valuation standards and utilizing best practice.

Real Estate Surveys:

We specialize in providing quality services in accordance with International Standard and Best Practice to clients in different sectors. The diversity of our professions within the department ranging from Building Surveying, Planning & Property Development, Property Inspection, Construction Management, Construction Engineering, Electrical Engineering as well as other professions ensuring that we have the ability to meet the needs of our clients. Our Building Surveying Department staff has a high level of professional expertise, academic and professional qualifications, technical competence, and either RICS/CIOB accreditation demonstrating a commitment to ethical standards.

Market Research:

We regularly produce property research reports with in-depth analysis on current and future demand and supply trends. We share our knowledge and experience with our clients to keep them up to date and well equipped to make the right decisions. Contact us if you have a requirement for a customized research report.

Property Consultancy:

As a chartered surveying firm, we provide other property consultancy services such as development advisory, investment advisory, strategic consulting and tenant representation. We provide investors, owners and occupiers with a comprehensive range of integrated real estate services.

Land Sterling is a British firm of chartered surveyors and property consultants. Our primary business specialises in providing valuation services of commercial and residential property throughout the Middle East and North Africa. We reach our clients wherever they are.

Property owners, occupiers, developers and investors come to us for a range of consultancy services backed by a local knowledge that sets us apart from the competition. Land Sterling’s consultants provide clients with the best possible advice, backed by rigorous analysis and sound research, which enables clients to make informed property decisions, reducing risk and improving overall success.


Rent Control has been a hotly debated topic in Dubai for the past few quarters mainly due to two reasons. First, resurgence of the property market in Dubai enabled rents to appreciate from recession lows fairly early than estimated, creating a wide gap between existing and market rents. This gap is attributed to the rental cap system in Dubai. Second, the removal of rental cap in Abu Dhabi in November 2013 bolstered the case against rent control in the UAE in general.

In this article, we seek to analyze rent control in Dubai with a wider lens and in light of the emirate’s current and future growth pattern. We set the base of the article with an overview about the origin of rent control and its major economic implications and then move on to view the case of Dubai from three perspectives - tenant, landlord and government.


Rent Control - What is it and Why it started?

Rent Control is a form of price regulation enforced by law which limits the changes in rental prices of a house or any real property. This form of price control dates back to an era when the occurrence of housing shortages were far more widespread and grim particular-ly in the aftermath of war, resulting in steep rental escalation. Thou-gh this state intervention was intended to be temporary in nature and designed to favor low-income household specifically, rent cont-rols have become a mass phenomena and now are in force in about 40 countries. Some countries have abandoned the first generation rent controls and have adopted a more flexible second generation controls that take in account variables such as inflation rate etc. to calculate annual rental increases. Find below a table of inter-city comparison of rent regulations and characteristics of rental housing in five cities internationally.

Rent Control - Economic & Social Implications

From an economic point of view, rent control results in the exact opposite of what it intends to address - a housing shortage. An increased gap between the existing and prevailing market rents disincentivizes to build new housing especially when construction costs increase due to inflationary pressure. For instance, Cairo and Mumbai suffer from an undersupplied rental market due to excessi-ve rental controls that have also resulted in severe property degra-dation, increased search costs, etc. The challenges faced by a new tenant to find a rental accommodation in the mentioned cities is a well known fact.

Despite of the economic ill-effects of rent control, most govern-ments regulate the rental market as a part of their social policy. The idea of rent control in the present times is to provide affordable accommodation for low-and mid-income households. It prevents wrongful eviction or increases in rentals which may solely be driven by economic gains rather than change in market conditions. But even this goal is only partially fulfilled and benefits only existing tenants. Rent control is exploitative against new tenants who have to cough up exorbitant sums to make up for the below market living cost of the existing tenants.However, it must be noted that the negative effects of rent control are more pronounced in countries which still embrace a stricter ver-sion of regulation , the first generation rent controls, where almost the entire or a large proportion of housing supply is placed under the regulatory ambit.

The Case of Dubai

Rent controls in Dubai have been in effect since 2006. Dubai rent regulations fall under the category of second-generation rent cont-rols which are mild and produce only modest effects on the housing market. From an absolute restriction on rental increases in first two years of tenancy in 2007 to allowing annual increases in line with the rent caps since 2008, the law has been amended time and again in line with the changing market conditions.

Tenants argue that the recent rental growth has been fuelled by spe-culative activity in the market especially post the World Expo 2020 bid win. While economic fundamentals strengthened in the UAE since 2013 and salaries, in general, improved but increase in salaries lags far behind the double digit rental growth in Dubai. For the sake of comparison, the average salary hike in the UAE was estimated to be about 5.3% in 2013 while the average residential rents (apart-ments and villas) in Dubai grew by 50% the same year. According to Mercer’s 2014 Cost of Living Survey, Dubai was ranked 67, up 23 spots compared to its 90th rank in 2013, making it a more expensive city to live in. Landlords argue that the current rental benchmark, published by RERA, is outdated. They further dispute that despite of the permit-ted annual rental increases, their properties are unable to achieve the prevailing market rents forcing them to put it up for sale. This perspective gathered more support after Abu Dhabi removed the rental cap system from its property market in 2013. The deregulation of the market did result in double digit rent hikes in Abu Dhabi in Q1-2014. However, the market has since stabilized as most commu-nities witnessed rental declines or hikes in the range of 0 - 5 % in Q3 -2014.

The government, however, faces a challenging task to maintain a balance between two opposing forces. Rental deregulation may incentivize developers to build more resulting in an increase in hou-sing supply in the long term. But in the short term, it may create rent price instability causing the cost of living to spike uncontrollably. High inflation will put Dubai at a disadvantage especially at a point of time when it is beginning to secure its position as a world class city offering a high standard of living comparable to global cities like London and New York but at about a third of the cost.

A fine balance is what needs to be maintained to achieve the short and long term goals Dubai has set for itself.

WCITYYEAR(1st generation)

YEAR(2nd generation)

YEAR (rent control repeal)

RENTAL HOUSING % (total housing)

RENTAL HOUSING % (rent control)

RATIO OF HOUSING (formal market)

RATIO OF INCOMES (controlled rent)

New York 1943 1969 2013 68 (2011) 32 (2011) 100 3

Zurich WWI 1972 2013 66 (1998) 100 6 (1998)

Manila WWII 1985 2013 96 (2011) 35 (2002) 15 (1998)

Cairo 1944 2013 50 (2008) 78 (2008) 56.5 (2008)

Mumbai 1947 2013 18 (2010) 92 (2010) 59 (2011)

The Argument About Rent Control in Dubai


TOP STORIES OF THE MONTH

Cost of LivingRises in the UAE

Dubai and Abu DhabiPrices Stabilize

Infrastructure Projects worthAED 3.1 bn in UAE

A recent survey - HSBC Annual Expat Explorer2014- places UAE 15th in a list that ranks destinations in terms of its popularity among expatriates choice to set -up a home. Bahrain, Qatar and Oman have been ranked better than UAE due to a lower cost of living as compared to the latter. Dubai’s inflation at 4.2% in September 2014 was reported to be the highest since May 2009 due to increase in the housing and utility cost by 6.5% y-o-y. UAE’s inflation, however, stood at 2.9% y-o-y highest since March 2009.

Q4-2014 saw housing prices, both sales and rentals, in Dubai stabilize. Apartment and sales prices grew 2% and 0% qoq. Rentals declined or remained stable across all communities and unit categories in Dubai. In the office sector, sale prices stabilised while rentals grew in popular communities like Business Bay and Tecom C. In Abu Dhabi, apartment and villa sales prices were stable for affordable communities like Al Reef and Al Ghadeer but fell for the established ones like Al Raha Beach and Al Raha Gardens. The findings are based on our in-house report Property Watch, published every quarter for Dubai, Abu Dhabi and Northern Emirates.

AED 2 bn worth of projects are either planned or underway in Dubai and about AED 1 bn in Abu Dhabi, according to Meed. About 98% of AED 2 bn includes construction projects related to real estate and social infrastructure and transport. In Abu Dhabi, infrastructure projects account for 68% of the total value, while oil and gas, petrochemicals and power and water sector account for the remaining 32%.


TOP STORIES OF THE MONTH

Tilal City: New Project in Sharjah

Abu Dhabi to HaveNew Affordable Projects

Building Completionsincrease in Abu Dhabi

Improving property sector in Sharjah has provided impetus for developers to initiate new project development in the emirate. Tilal City, to be developed by Tilal Real Estate, will be built over an area of 25 million square feet along the Emirates Road. No further details were made available. The launch is in line with steady addition of newer units in the emirates especially in the Al Majaz area. Uptick in rentals in Sharjah has made it profitable for individual developers to complete towers where construction had been on-hold since recession.

Aldar Properties plans to launch a new projects targeting the mid-income buyers and tenants over the next 3 - 4 months. No further details were provided. These projects are in addition to three new residential projects - Al Hadeel, Ansam and Nareel - the developer announced in Q1- 2014.

A total of 1842 buildings were completed in Abu Dhabi in Q1 2013, an 18% rise compared to Q1 2012. Out of these 91.4% were residential and remaining commercial. A 6.2% drop compared to Q1 2012 was recorded in residential unit’s completion with as many as 2461 units completed in the entire Abu Dhabi region, with Al Ain and Al Gharbia accounting for 28% and 0.5% respectively.


FEATURED PROPERTIES OF THE MONTH

FORRENT

FORRENT

FORRENT

FORRENT

FORRENT

FORRENT

Community : Downtown Dubai Floor : High floor

Details : 2BR+Maids Apartment View : Sea and fountain view

Size : 2,108 Sq ft Rental Price : AED 500.000/-
















Maria Crown

Al Hassani Tower

Armada 3

Burj Khalifa

Springs 3

Patricia Tower


FEATURED PROPERTIES OF THE MONTH

FORRENT

FORRENT

FORRENT

FORRENT

FORRENT

FORRENT



















Maria Crown

Al Hassani Tower

Armada 3

Burj Khalifa

Springs 3

Patricia Tower

land sterling v2

Documents

dubai land department

land sterling4

land sterlingwww

land sterlings judgment

dubailand sterling

bsc hons

ongoing oil price tumult

dubais resilience