Captain Edil Bird nudges the bow of his 56ft Majestic yacht, Heart of Europe, into the soft sand. A sign on the beach reads: “Wilkommen in Deutschland. Passkontrolle.” Before we weigh anchor, Josef Kleindienst rides up in a buggy. “Welcome,” he smiles. Kleindienst’s accent is unmistakably Teutonic, but Deutschland does not look much like Germany. It’s all sand. The temperature is nudging 40C. Apart from Kleindienst, the only people I can see are a bunch of sun-baked Asian construction workers. Welcome to Germany, Dubai. Not content with creating fake beaches and fake ski slopes, the emirate has created a fake country on a fake continent. Deutschland is the centrepiece of a new development called the Heart of Europe, six reclaimed islands in the Arabian Gulf — Germany, Sweden, Switzerland, Monaco, St Petersburg and a hybrid island “with inspiration from Vienna, Paris, Rome and Barcelona”.
They are part of the World, a £10bn development of 300 islands arranged in the shape of a global map. The scheme was the worst casualty of Dubai’s spectacular real-estate boom and bust. The islands were completed in 2008, just before Lehman Brothers collapsed and land and property prices in the emirate slumped by 60%. They have lain empty for years, yellow polka-dot monuments to the desert dream. But now something remarkable is happening. Building has begun. Kleindienst is the boss of the Austrian firm Kleindienst Group, which has spent £180m buying the six islands, and is investing another £600m in building villas, flats and hotels to create the Heart of Europe. “Come back in 20 years’ time and this will be the most expensive property here,” he insists. He’s not joking — and the funny thing is, it looks as if he’s right. Dubai is back. As well as the World, more than £7bn of mothballed developments have sprung back to life over the past 18 months.
Projects worth more than £3.5bn were announced during the first quarter of 2014; another £15bn will be unveiled by the end of the year. The developments are selling, too. The latest figures from the Dubai Land Department reveal that investors spent almost £6bn on real estate in the emirate during the first quarter of 2014 — up by 57% on the same period last year. Knight Frank says Dubai topped the global real-estate price rankings in January-March for the fourth consecutive quarter, soaring by 27.7% from a year ago — a rate that’s faster than in London. Average transaction values have risen by 173% this year. British investors, who led the first Dubai boom, are back in droves.
Mark Horgan, CEO of the foreign-exchange specialist Moneycorp, which helps Britons to buy homes overseas, says the 15% rise in sterling’s value against the dirham is a key driver. The signs of boom are eerily familiar to anyone who rode the Dubai rollercoaster in the Noughties. Drive down Sheikh Zayed Road, the main drag, and mile after mile is lined by hoardings advertising the latest properties with generic names that pay no heed to the pancake-flat, desiccated landscape — Fountains this, Heights that, Springs the other. The biggest billboard shows the bouffant tycoon Donald Trump plugging his latest golf resort, the 42m sq ft, £4bn, 7,400-home Akoya. Built by Damac, a leading Middle Eastern developer, it will have the first open-air ice rink in the desert. The bragging is back, too. “That’s ours. That’s ours. That’s ours,” says Niall McLoughlin, senior vice-president of Damac, from the 50th-storey terrace of the £4m penthouse at his firm’s new Maison Dubai Mall Street skyscraper. “We have 12 new towers in this area alone.” Overall, the company is building more than 25,000 homes in the emirate. Nakheel, the developer behind the Palm Jumeirah archipelago, is building 3,528 homes on the Palm, as well as at Jumeirah Park, Jumeirah Islands, Al Furjan, Jumeirah Village and International City.
The firm, which was bailed out in 2009 after running up debts of more than £1bn, recently announced that it is on course to repay its creditors next month — four years ahead of schedule under its debt restructuring scheme. Emaar, the city-state’s most successful developer, is investing in Dubai Marina and Downtown Dubai, the area around the Burj Khalifa, the world’s tallest building, which it built. Mohamed Alabbar, Emaar’s boss, is also developing a waterfront project of 1,500 acres along Dubai Creek. “That will be our jewel,” he says. Nothing is too bling for Dubai — again. Palazzo Versace, a hotel and villas by the Italian fashion house, is set to open later this year. What’s driving the new boom? “The economy is back, the city is back,” Alabbar says. “After those horrible times, confidence is back, and that means real estate is back.” As the global economy recovers, the three pillars of Dubai’s success — trade, travel and tourism — are all on the rise. Ports and hotels report record growth. There are so many well-upholstered bums on well-upholstered Emirates seats that Dubai airport has overtaken Heathrow as the world’s busiest international hub.
Tourist arrivals are set to reach 20m a year by 2020. At the same time, the turmoil in the Arab world is driving investors to Dubai, the region’s economic and political safe haven. The population is growing so fast, even the government has lost count. Sluggish growth corruption and political uncertainty in India is drawing billions of dollars. Indians now make up the city-state’s biggest market by number of buyers. A clampdown on private banking in Switzerland has also sent a tidal wave of cash into Dubai, most of which, analysts report, is being sunk into property. Economic growth is 5.2% a year, the fastest rate since 2007. The real-estate frenzy begs an obvious question: is Dubai inflating another big
bubble? Some government officials are concerned. Mohamed Lahouel, chief economist at the Dubai Department of Economic Development, says: “There is certainly speculation in the real-estate market today. Human greed is driving it.” Estate agents are seeing the return ofcash buyers. “I had a Russian come in the other day with €500,000 in bills in a bag,” one local agent admits. “He’d said he’d just completed a diamond deal and hadn’t had time to go to the bank.” House-price rises have begun to slow in some areas, prompting some analysts to predict a collapse. Share prices of the big construction firms, notably Arabtec, have slumped as investors take fright. But Hussain Sajwani, boss of Damac, is unconcerned. “The numbers don’t support a bubble,” he says. “To keep pace with demand, Dubai will need 18,000 new flats and villas a year for four or five years, and the industry will not supply that.” Most of the new developments are being sold off-plan, with buyers reserving a property from an architect’s model and paying in stages as it is built. The off-plan system contributed to Dubai’s bust because, when the crunch hit, developers could no longer borrow to complete buildings, and buyers could no longer borrow to complete payments. Buyers defaulted and developers went bust. New developer-imposed rules governing off-plan sales make the model more robust this time round, analysts say. Damac and Nakheel demand large deposits — up to 25% — from off-plan buyers. Emaar bans investors from reselling homes before payment is 40% complete, and bars estate agents from reselling homes until they are fully built. “We want solid investors and end users, not flippers [investors who trade off-plan properties before completion],” says Ali Rashid Lootah, who runs Nakheel.
“No more crazy stuff.” Recent changes in the law have also helped to stabilise the market. Developers must buy and pay for land in full, and have 20% of the construction budget, before they can start building. Borrowing for unbuilt real estate, a key driver of the last bubble, is capped at 50%. Stamp duty has doubled to 4%, and banks can lend only 75% of the value of a first home priced at £1m or less to first-time foreign buyers, then 60% for subsequent purchases. Ministers are considering new charges on off-plan resales to further deter flippers. “The industry and market are smarter now,” says Alan Robertson, chief executive of the property consultant Jones Lang LaSalle in the Middle East. Kleindienst certainly hopes so. Back in the brain-frying heat of the Heart of Europe, he is discussing the attractions he will create to lure investors and tourists. “I want to build a circus school with trapeze artists,” he says. The idea could scarcely be more apt. Like Dubai itself, he is on a high wire, gambling that this time the razzle-dazzle city-state’s rise will not end in a spectacular fall.
Source: http://www.thesundaytimes.co.uk/sto/style/homes_and_gardens/overseas_property/article1429971.ece – The Sunday Times