An artist’s impression of RAK Gateway City.
Shaken but still standing
Despite the market taking a body blow from the global recession, developers in the Northern Emirates are putting on a brave face and hoping that a recovery is around the corner, reports PHILIP M.
01 November 2009
2009 will probably go down in history as the most challenging year ever for the property sector in the UAE. While the rest of the nation had to face the prospects of an erosion of overall market confidence driven by the global financial crisis, the Northern Emirates, especially Sharjah, was pulled down by infrastructural shortcomings.
This, coupled with property prices heading south in Dubai, has created an unprecedented challenge and it could take months before investor confidence is restored. A further blow came towards the tail-end of the year when the much-awaited America’s Cup was called off in Ras Al Khaimah, leaving investors scratching their heads over the millions of dollars they had pumped into the emirate ahead of the prestigious sporting event.
For years, the Northern Emirates have adopted an almost secondary status to the property dynamics of the UAE. While Dubai continued to be the trend-setter and prime mover, and Abu Dhabi rushed in with heavy spending in infrastructure, the Northern Emirates were content to play wait-and-see.
When property prices made quantum leaps in Dubai, the Northern Emirates benefited from the growing demand for cheaper accommodation from the larger expatriate community, who preferred to work in Dubai and stay in Sharjah. This in turn, resulted in nightmarish traffic gridlocks on the Sharjah-Dubai Road.
The pattern became all too familiar: rents went up in Dubai, residents moved to Sharjah; high demand pushed up rentals in Sharjah, residents moved further upward to Ajman and Umm Al Quwain.
Now, with the downturn, there has been a clear reversal in this pattern in the rentals sector with people – tired of the daily gridlock – increasingly moving back to Dubai from Sharjah, taking advantage of falling rents. With this reversal, rentals in Umm Al Quwain and Ajman – and even Sharjah – are now back to pre-peak levels.
In Fujairah and Ras Al Khaimah, however, the dynamics are entirely different, as they are not swayed by rental fluctuations of other emirates. Ras Al Khaimah continues to be the more aggressive emirate in terms of infrastructure spending and new developments, and with more investors looking for investment options in the free zones of Ras Al Khaimah, there has been more demand for property. As a result, prices, while not skyrocketing, have been steadily on the rise.
Although the rental market has been shaping the property sector of the Northern Emirates, there have been efforts to tap into the freehold sector that ushered in the property boom in Dubai.
There have been several high-profile residential freehold launches, including the Dh8-billion ($2.17 billion) Shah Rukh Khan Boulevard on Dana Island in Ras Al Khaimah, backed by the Bollywood superstar himself. Where this project stands today is anybody’s guess but it will be too hasty to write such developments off, especially given the newfound optimism in the Dubai property sector.
For all practical purposes though, Dubai continues to be the bellwether for the UAE’s real estate market and when the city sneezes, the Northern Emirates’ realty sector will inevitably catch a cold.
Given the current state of the freehold property market, it is perhaps futile to take individual projects and appraise their progress, simply because the number of projects on hold is far greater than the number steaming ahead.
Ajman, for example, was at the forefront of the property boom. The sleepy emirate indeed looked like having more high-rises per square foot in various stages of completion than in Dubai. The overall landscape of the emirate changed overnight – and where small warehouses and villas once held sway, there arose a preponderance of high-rise apartments.
However, the promise of investing in Ajman – the truly aggressive among all Northern Emirates in the freehold property business – continues to be good. Today, there is more market confidence in the UAE, if measured in tangible terms, than all of the previous 10 months of the year put together. This sign of recovery, especially led by the success of Dubai’s bonds in the international markets, could mean only one thing: demand for homes in the Northern Emirates could look up in the next 24 months.
The safe bet, of course, would be to invest in completed projects than rush to feed the developers with hard-earned cash, given that the mortgage market is yet to gain strength.
Further up in Umm Al Quwain, projects continue to ‘progress’, as their developers claim, one of the most significant being the Umm Al Quwain Marina by Emaar Properties in partnership with the Umm Al Quwain government. There is a skeletal formation on ground but will investors check into their swanky new homes overlooking ‘one of the world’s finest marinas’ on schedule? Time alone will tell.
Ras Al Khaimah’s biggest investor is its own government and affiliated authorities. There are impressive projects on paper, in varying stages of construction, including some impressive waterfront developments.
The enthusiasm was perceptible at the recent Cityscape 2009, where Ras Al Khaimah Investment Authority (Rakia), Al Hamra Real Estate and Rakeen joined hands to showcase a selection of their projects in addition to free-zone packages, onshore and offshore business solutions and a portfolio of global assets.
Among the key projects were Al Marjan Island, the first man-made island in Ras Al Khaimah (see separate article), RAK Gateway City, Al Hamra Village mixed-use development, Rakia Amenities Centre, and various business opportunities within Rakia’s free zone.
Ras Al Khaimah’s “white sandy beaches, red desert dunes and majestic Hajjar Mountains”, in addition to the “proximity to the comforts of state-of-the-art residential and commercial amenities”, were cited as driving forces for Rakia’s projects.
Once these developments take shape, the emirate is sure to establish further as a robust investment destination – but again, a lot of it rests on the economy per se, and the negative impact of the global financial crisis on investor morale easing.
Another confident endorser of the property sector in the Northern Emirates was Sweet Homes Holdings, which showcased its Ajman Uptown project at Cityscape.
Its CEO Fahad Sattar Dero said the company’s decision to include the Dh3.5 billion ($953 million) development in the first batch of approved projects demonstrated the firm’s strength and commitment to deliver it by 2011 (see separate article).
“This move will give much more strength to the Ajman market in terms of investor confidence, as it lends a much-needed reassurance to investors with regard to the capacity of developers to deliver their projects,” he said.
These confident assertions came alongside reports of projects being delayed but what is indeed heartening is that developers are continuing on an upbeat note.
Meanwhile, Fujairah remains content with its own pace of growth in the property sector, and rentals continue to govern the property landscape.
There are no aggressive ambitions to hit freehold era big time, which means, the global crisis or its aftermath has largely untouched the emirate – at least vis-à-vis the property sector.
For Sharjah, the story is entirely different. Never really convinced by the freehold proposition, the emirate continues to be plagued by two major worries: inadequate traffic infrastructure and, more recently, acute power shortages that have been testing the patience of residents.
While the Northern Emirates took a back seat in property deals in this year, what must not be overlooked is their potential for growth. Today, the Northern Emirates account for more than 18 per cent of the UAE’s gross domestic product (GDP) and supports 40 per cent of the population, according to reports. Sharjah accounts for the highest population – 28 per cent, followed by Ajman and Ras Al Khaimah with seven per cent; Fujairah (four per cent) and Umm Al Quwain (one per cent).
The Northern Emirates, according to a Oxford Business Group report, have 39 per cent of the country’s housing units, and billions have been invested already in developing not just homes and offices but posh hotels and resorts as well as sprawling shopping malls across the region. That will make this region a strong contender in the coming months and years for robust property investments.
