Schon's insider view on the Dubai property market
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Schon's insider view on the Dubai property market

Schon's insider view on the Dubai property market

Danial Schon, Vice President of Schon Properties, talks to AME Info about the Dubai real estate market, which sectors investors should be looking into for the biggest returns and why he thinks that prices across the city can only keep increasing.

    Schon Properties is well established in Dubai's property market.

    The company already has four projects under development.

    Its flagship residential projects are the Dubai Lagoon development and Schon Suites and the latest launch, the Signet project in Jebel Ali.

    The Signet is a mixed-use development that will allow people to make use of one space for their business and residential needs.

    This, Schon believes, will prove popular in the face of ever-increasing commercial rental costs.

    'This project was made keeping small businesses in mind.

    'The biggest problem for these people when they move to Dubai is that, because of the rising costs of rent they can never find a place.'

    Recent reports that home owners would not be automatically eligible for residency visas have added further questions for investors from outside the GCC.

    'I think that everybody is still seeking clarification on that,' says Schon.

    'But I know that the government of Dubai is so pro-business, and the policies are for the benefit of the economy, buyers, end users and so on, that the final decision will work in everybody's favour. I don't think that it will be a case of 'we were promised this but didn't get it'.

    'But we do tell our buyers that the residency visas will be subject to approvals at that time. We don't know what they might be, laws change all over the world, so we don't say that you're guaranteed a visa.'

    Most profitable branch of Dubai's real estate market

    Of the various projects springing up across the city, all are designed to attract investors.

    But though prices are spiralling in the residential, commercial and hospitality sectors, Schon believes that, for individuals, the latter will bring the best returns.

    'Serviced hotel apartments are definitely the most profitable, because Dubai is built on tourism. You see the campaigns all around the world.

    'We launched a project called Schon Suites about three months ago. The concept is that all the rent goes into a pool, then an independent auditor distributes the rent equally according to your percentage ownership of the building.

    'It's for people who can't build hotels themselves. And it's a very good return, the projected yields come up to 20% per year – that's on 10 year historical information from the Department of tourism and Commerce Marketing, the inflation rate and so on. We've done extensive research on this and the numbers are phenomenal.'

    Dubai property prices to increase

    Almost all developments have shown these increases.

    Most of the projects in Dubai have posited double-digit growth over a 12-month period.

    This growth, driven in part by speculation and supply shortages, will not slow down as more properties come online, Schon believes. The root cause of the price escalation is down to the construction component.

    'I think prices have a long way to go yet,' he says. 'Mainly due to the rising cost of construction, which is detrimental to the industry as a whole.'

    Global factors, such as China's decision to increase payments for steel imports by 40% above market rate, are continuing to have a local consequence.

    'Things like that have a huge effect. The minute you've purchased your steel it's already going up 1.5% per month, that's the rate that we calculate construction inflation at for our contingencies.

    'What this does is that it drives prices up, because it controls supply but the demand is still high. So, prices have a long way to go. People ask me why property is so expensive – the most important thing in development is not hype, it's not marketing or sales, it's delivery. If developers don't price at the risk of tomorrow's costs, then they will lose money. And, if that happens, the quality suffers.'

    Increased regulation helps property market

    'The creation of Rera will ensure that it never gets to the point where the credibility of Dubai is affected, because they will step in,' Schon notes.

    Rera is a prime example of how Dubai's property landscape has changed, partly in response to concerns over the lack of transparency in the market. Government legislation has enforced a set standard of regulation among the city's developers and agents.

    'Every transaction is regulated, everything is transparent. You have to set up an escrow account before anything is sold now,' he agrees. 'We also have green building guidelines to follow.'

    Thanks to initiatives like these, Schon is convinced that the upward trend is certain to continue, and that investors should take advantage of the opportunities on offer.

    'We were offered plots in 2002 that we didn't go for, because analysts were saying 'the bubble's about to burst'. These are the same reports that are still going around now. Anyone who says that is not looking at the whole picture.

    'Dubai is the centre of the region for property, there are also investors from Iran, Pakistan, India. Even Chinese groups have started investing here. Everybody wants to be involved.'

    See also:
    Dubai average price index
    Compulsory real estate diplomas to test agents' ethics

    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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