Thursday, May 05, 2005

Dubai Real Estate Sector: Some Research Results

The contribution of the real estate and business services sector
(Henceforth-real estate sector) to Dubai non-oil GDP was 10% in
2002; and it grew by an annual average rate of 7% during 1998-
2002. The sector comprises firms that are primarily engaged in
Renting or leasing real estate to others; managing real estate for
Others; selling, buying, or renting real estate for others; and
Providing other real estate related services, such as consultancy in
Real estate-related matters including valuation, land use, urban
Planning and corporate property investment. The most
Dominant services in the sector are real estate brokerage; real estate
Leasing and management; and sale and purchase of real estate and
Lands. The least services are renting residential units on time
Sharing basis; commercial complex and shopping centers; and car
Park rental and management.
The sector main clients in order of importance are private
Individuals; industrial companies; retailers and wholesalers;
Government entities; and restaurants and hotels respectively.
Other clients include investors seeking consultancy services; travel
Agencies and airlines.
According to DCCI database, there are 1144 registered firms in
The sector, but the active ones are only 934 firms. Table 1 gives
1865 firms because on average each firm of the 934 is engaged in
Two activities as the same time, i.e. 934 multiplied by 2. The real
Estate brokerage is the largest category, followed by leasing &
Management, and then sale & purchase.
Table 1: Real Estate Activities in Dubai
Source: DCCI Database 2004
In 2004, DCCI conducted a survey for all real estate firms
Registered in its membership database. The objective of the survey
Was to collect economic information about Dubai real estate
Sector. This was supplemented by a number of in-depth
Interviews with the entrepreneurs in the sector. According to this
Information, 21% of the small firms, those with less than 10
Employees, have reported a turnover growth of more than 20% in
2003. Regarding their expectations for 2004, 38% of the small
Firms expect their turnover to grow by more than 20%. Large
Firms, those with more than 10 employees, about 30% of them
Expect a turnover growth of over 20% in 2004, where 27% of
They showed such a growth figure in 2003. For the large firms
Refer to Figure 1.
The age distribution of the real estate firms shows that 49% of the
Active firms in the DCCI membership database are 4 years old or
Less; 30% are 5 to 9 years old; 12% are 10 to 15 years old; and 9%
Are more than 15 years old. This clearly shows that almost half of
The firms have joined the sector in the last 4 years, thanks to the
Recent boom of the real estate sector.
Figure 1: Actual and Expected Turnover
Growth of Large Firms
Source: DCCI Survey - 2004
The increase in population, flourishing tourism, financial
Mortgage facilities provided by banks and other financial
Institutions and permission for foreigners to own real estate have
Fuelled the demand for real estate services; most of this demand is
For residential units. The current real estate service requirements
In the market are real estate management services, i.e. leasing and
Sale and maintenance management. Moreover, the services
Provided by the residential units, complexes and towers, like
Management, fast maintenance and other facilities, have become
Important for the attraction of tenants and buyers.
Some informants in the sector estimated that the rent for
Residential property went up by about 20% in the first quarter of
2004. According to the DCCI survey, some sources in the real
Estate sector estimate that the investment in the sector is between
5 and 7 billion dollars, and the annual profit rate is between 9%
And 10%. On the other hand, government sources expect that the
Investment in the real estate sector to be around 50 billion dollars
By the year 2010. It is estimated that total employment in the
Sector is around 6621, which includes both owners and
Employees.
Some stakeholders in the sector advise that government's
Regulations and laws need to be streamlined to catch up with
Developments in the sector; one example is the rent issue where
There are serious concerns for the balance of relations between
Property owners, brokers, and tenants. Another issue is the bank
Guarantee imposed on the firms, which some consider prohibitive.
Also, they think that the government charges them relatively high
Fees. Another issue is the unclear legal status of foreigners and
Whether they will have freehold title for the property they buy in
Dubai. Regarding finance, the banks are concerned of the lack of
The regulatory framework for mortgage finance and what will be
The procedures for repossessing the property of defaulting
Borrowers. Private firms are concerned of their competitive
Position vis-à-vis government supported firms in issues regarding
Land grant, government approval procedures, and selling to
Foreigners, which all place them in a disadvantaged position.
0 10 20 30 40 50 60 70 80 90 100
Large Firms
2003-2004
Large Firms
2002-2003
Increase > 20% Increase 0 - 20% Stable Decline 0 - 20% Decline > 20%
Firms No. Activity
705 Real Estate Brokers
546 Real estate leasing and management
406 Sale and purchase of real estate & lands
79 Hotel apartments rental
46 Car park rental and management
40 Shopping centers
31 Commercial complexes
8 Rental of residential unit on time-sharing
4 Brokers rental of residential unit on time
Sharing
1865 Total

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