Investors await confidence boost before returning to Dubai real estate

These were the conclusions from the expert panel at the third Cityscape Connect Business Breakfast, which attracted nearly 200 senior real estate industry players on 7th July.

Cityscape Connect is the not-for-profit initiative from leading global real estate event and business information brand Cityscape. It is designed to stimulate networking and information sharing and acts as a year-round platform to discuss business-critical issues in the real estate industry.

'Sentiment drives markets, and sentiment is important to the recovery of Dubai's real estate market,' explained Ian Ohan, Head of Investment Transactions at Jones Lang LaSalle and moderator of the panel discussion.

The global economic downturn has dented investor confidence. Banks are unwilling to lend money to real estate investors and developers, concerned at the likelihood of defaults, while investors worry about falling values and the ability to let commercial or residential buildings.

As a result, banks and investors have become very cautious with many preferring not to invest, despite having available funds. Those that do invest focus on secure income-producing assets rather than seeking high risk-high return strategies.

'The issue is risk aversion. Investors are worried about risk. We need the banks to invest once again and the funds to employ money. But there is no clarity of the future, so liquidity will remain on the sidelines until confidence returns.'

explained Marwan Shehadeh, Managing Director of Al Futtaim Capital.

'Real estate is about supply and demand. People are only willing to invest where they see a clear shortage in supply. In Morocco and Egypt, for instance, there is a shortage of middle income housing. But in Dubai there is a lack of clarity regarding supply and demand in the real estate market.'

Heather Wipperman, CEO of Investment Boutique called for more reliable and timely real estate statistics to be made available. She suggested that Dubai's developers, brokers and mortgage banks pool their data to create one independent central source of real estate statistics to increase transparency, and therefore confidence and credibility, in Dubai's real estate market.

'If you're trying to manage your business you need a real time understanding of the market. But right now there is not adequate and consistent information. We need more reliable performance statistics. For instance, what are the average asking and selling prices? What is the average number of days a residential unit remains on the market before being sold?'

Improving real estate legalisation will also increase transparency and increase confidence, added Duane Keighran, Deputy Head of Real Estate, MENA region, at Simmons & Simmons.

'Dubai needs to import best practice from the UK and Australia. For instance, it is difficult to get a judgement on a real estate court case. Nor can you do a real time search to find out who owns land. Such changes will add transparency and attract institutional investors.'

However, Markus Giebel, CEO of Deyaar, defended Dubai. 'You must remember that Dubai is still an emerging market, and emerging markets don't have legal frameworks so Dubai is having to catch up. Can we change Dubai from an emerging to a mature market in 12 or 24 months? Probably not, but we are making the right tracks.'

Martin Seward-Case, Chairman of the UAE branch of the Royal Institution of Chartered Surveyors (RICS), supported Giebel's view. He told the audience that the RICS was supporting Real Estate Regulatory Agency (RERA) to establish ground-breaking changes behind the scenes. RERA are doing a fantastic job; we'd only hope that they continue to remain bold and impartial - where possible avoiding significant influence from Master Developers.

In terms of a recovery in the real estate market, Wipperman said Dubai still 'had some way to go', but she predicted a change in fortunes at the end of 2010.

'Institutional investors are looking at the existing supply of real estate, the anticipated supply to come on line, population statistics and the health of the business community. But, in Dubai we still have a way to go on all of these factors.'

Wipperman said any recovery in Dubai would at first be patchy; focused particularly on neighborhoods.

'Certain pockets of Dubai are more robust. The southern area of Dubai is more resilient and we're getting closer to a price equilibrium, particularly in Dubai Marina and Discovery Gardens.

But to reach a recovery, Markus Giebel, CEO of Deyaar, stressed that Dubai must continue to invest and improve as a city.

'It is important to continue to spend on infrastructure, safety etc. It is these things that make Dubai a great city.

'Let's trust in Dubai, believe in Dubai and continue to build Dubai.'