RAK Properties this week announced the completion of land filling and marine work at its Mina Al Arab development, a $2.7bn mixed-use project on Ras Al Kaimah's beachfront. With ever more projects like these coming on line, there is good reason for investors to be looking beyond Abu Dhabi and Dubai. In recent years, the boom enjoyed by the larger emirates has spilled over to their smaller neighbours.
Real estate agents in Ajman report that some 200 residential towers are either completed or in construction across the emirate, with Ajman One - a flagship development of 12 towers - already sold out of completed studios and one-bedroom flats. Further up the coast, Ras Al Khaimah is similarly thriving. RAK Properties' Julfar Towers is already 75% sold out, and the developers are holding back the remaining allocation in the expectation of further price growth.
This rice in prices is already on its way. Speaking at the first Ajman exhibition of the R&R Local Property show on February 8 and 9, Amir Pardesi, vice-chairman of Dubai-based developer Mazyood Giga International, said, "Real estate will remain the primary engine of growth for the Northern Emirates for some time to come."
Different factors are at work in driving this growth. Ajman is around an hour's commute from Dubai and, despite recent hikes, is still able to boast real estate prices less than half those of central Dubai. The few remaining units currently on sale at Ajman One are on the market for around $1600 per sq m. By comparison, the sale price for a similarly sized apartment in Dubai is around $4000 per sq m.
Ajman's attractiveness as an alternative residential location to Dubai is borne out by the breakdown of recent customers. Aida Tomolso, the general manager of Inter Emirates Properties, told local press in October that as much as 75% of current demand comes from residents, as opposed to those buying purely to invest. She said this trend has driven secure price growth from between $980 to $1650 per square metre about a year ago to about $1450 to $2130 per square metre now.
By contrast, Ras Al Khaimah is currently attracting a different market. The majority of those buying in the northerly emirate are not commuters but are based there for business. With the emirate currently enjoying success in several industries, including pharmaceuticals, film post-production, cement and tile manufacture, it may well become the next emirate to "take off" in its own right. According to the RAK department of economic development, real estate as a share of GDP has been around 2.5% higher (at 10.8%) than the UAE average up to 2005 (the last year for which figures were available), and the indicators are that growth in the past two years has outpaced these figures.
Ras Al Khaimah is experiencing significant demand from domestic population growth, but is also focusing on the investor and tourist market, promoting itself as an escape destination. This has led to the emirate's own mega-projects, including the $1.8bn Al Marjan islands project by Ras Al Khaimah-based developers Rakeen. This series of five "green" islands is using a technique called closed water dredging, which better maintains the clarity of surrounding water. The project has already generated interest, with Dubai's Khoie Properties constructing the $800m La Hoya Bay Residence there. The project will feature studio, one- and two-bedroom apartments starting at around $100,000. The second stage of construction is expected to be completed in 2008.
The recent boom has not been without its headaches however. As it has across the UAE, inflation is beginning to takes its toll in the Northern Emirates. The northern neighbours may be even more exposed to price increases than Dubai and Abu Dhabi, being at an earlier stage of market maturity.
Mohammed Sultan Al Qadi, the CEO of RAK Properties, told OBG that wage growth for skilled employees was a particular problem. In early 2007 a construction engineer's monthly salary was Dh20,000 ($5446). According to Al Qadi, that figure has now doubled to Dh40,000 ($10,892). When other costs are also factored in, such price inflation could have a major impact on profit margins, and could in turn reduce the appetite of construction firms to bid for tenders.
UAE authorities have taken some moves to dampen the effects of inflation. Cement has been capped at Dh295 ($80) per tonne, or Dh17 ($4.60) for a 15kg bag, although there are reports of suppliers ignoring this. On the demand side, many of the emirates have employed rent caps to protect tenants from hikes of up to 70%. These are indirect measures however, and do not address the real problem of bottlenecks in construction, and a dearth of studios and one-bedroom apartments. For Ras Al Khaimah in particular, this is a growing problem: there has been a 40% increase in people living singly, brought about in many cases by expatriates having to send their families home due to rising costs of living.
Central measures will help ease some of these problems. However, with Merrill Lynch predicting inflation of 12% for the UAE this year, there may be further bumps along the road.