In 2011 the Dubai government released Dubai Urban Plan 2020, setting out its objectives for the emirate’s urban environment. Key themes include sustainability, integrated land use planning, transport networks and affordable housing for all. Since this time, two important events have taken place: the announcement in 2013 that Dubai will host Expo 2020 and signs of a continued recovery in the local real estate market.
Expo 2020 will be the first World Expo staged in the Middle East, North Africa and South Asia (MENASA) region. Staged over a six-month period, an estimated 25m visitors will explore exhibits and events from hundreds of nations and businesses. The chosen theme is “Connecting Minds, Creating the Future”, with the sub-themes of mobility, sustainability and opportunity. The high level of interest it has already generated, coupled with the expectation of a significant injection of capital, has led to an immediate increase in confidence across all sectors of the economy. Master planning for the main site has commenced in conjunction with a consortium of global planning specialists, and infrastructure tenders are due to be awarded in early 2015.
Dubai has also been making news through announcements of its own mega-projects beyond Expo 2020. These include: Burj 2020, Dubai Parks and Resorts, and Mohammed Bin Rashid City, perhaps Dubai’s most ambitious project to date. This will comprise a city within a city, including Mall of the World, the world’s largest shopping mall, and 100 new hotels.
As Dubai delivers a second boom, it is also mitigating against a second bust. Dubai is a civil law jurisdiction, with legal relations governed by laws at federal and emirate levels. The federal framework for the UAE’s civil and commercial codes does not contain the detail necessary to regulate a real estate economy as dynamic as Dubai’s. Consequently, the Dubai government has introduced a series of measures at the local level to fill the void. The emirate is widely recognised as trailblazing the development of a comprehensive regulatory framework for the UAE and the wider MENASA region.
Since 2008, headlines have been dominated by stories of poorly managed developers and speculation by greedy property investors. These activities were, of course, symptoms of a market that saw various unhealthy practices proliferate. In recognition of this multifaceted issue the Dubai government is introducing regulatory measures for all participants in the market and aspects of transactions that are vulnerable to abuse. For example, brokers and developers must now be registered with the Real Estate Regulatory Agency.
In order to sell off-plan, developers must back their projects with deposits in escrow and unconditional bank guarantees, as well as deposit instalments from purchasers into project-specific escrow accounts. In order to deter flipping property, transfer fees have doubled to up to 4% of property value and are payable upon both asset and share sales.
As a consequence, a new type of market has emerged. Barriers to entry have reduced the involvement of small and mid-scale private developers and purchasers reliant on high loan-to-value mortgages. Established developers are taking the lead on future projects, with many imposing supplementary restrictions on transfers of off-plan properties. Coupled with a recovery in its infancy, the high-gain, short-term speculation witnessed prior to 2008 has not been repeated. An initial period of overheating after the award of Expo 2020 was followed by a prompt correction.
Despite these advances, some believe Dubai will still have its work cut out to manage demand and deliver sustainability as recovery continues. To deliver on Dubai Urban Plan 2020 and Expo 2020’s themes the government will need to take an active role in ensuring that developers’ projects better serve the emirate’s broader vision, with an immense amount of coordination required. The government will need to guard against becoming over-stretched by the number of initiatives. Dubai is certainly up to the task, and this time around, it can afford to be confident in allying strong market fundamentals with the discipline to moderate excess.
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