UAE Real Estate

SECTOR
Research
12 September 2008 UAE Real Estate

“Reaching New Heights”
We maintain a positive outlook for

the overall UAE real estate sector in
2008-09, fundamentally driven by
Abu Dhabi and its huge
demand-supply imbalance
Dubai real estate would experience a

correction in the prices of residential
developments in 2010 whereas the
commercial segment will continue to
boom, offsetting the fall in residential
prices to some extent
The UAE’s real estate sector will

continue to flourish amidst stubbornly
high inflation rates as property is
used as a hedge against inflation
KFH Research Ltd

KDN PP15024/3/2009 (021451)
Contents
UAE Real Estate Outlook 3
Demand Drivers for Real Estate 4
Challenges facing the Real Estate Sector 13
UAE Real Estate vs.GCC Real Estate 14
Emirate-Specific Outlook
Dubai 15
Abu Dhabi 27
Ras Al Khaimah 33
Fujairah 35
Ajman 36
Sharjah 38
Umm Al Qaiwain 39
Research Team
Baljeet Grewal
Managing Director & Group Chief Economist
Tel: 603 – 20557877
[email protected]
Tursina Yaacob Mohd Arsad Thinoon

[email protected] [email protected]
Waina Leong Imran Ibrahim

Noor Ashikin Ismail Tabassum Khwaja

Kuhan Balasegaram Meeta Anand

Darshini M. Nathan Mashkurah Abdul Latif

Mohd Izhar Allaudin

[email protected]
Sec
tor
Foc
12 September 2008 us
UAE Real Estate
UAE Real Estate

“Reaching New Heights”
UAE’s real estate market is enjoying an unprecedented boom and is considered the
most active of all real estate markets in the Gulf Cooperation Council (GCC) region. The
real estate and business services sector in nominal terms continues to grow, recording
a CAGR of 20% during 2003 - 2007. In 2007, the real estate sector showed a strong
growth of 21% y-o-y, with the realty and construction sectors contributing 8% of GDP
or USD15.19bln. The sector was buoyed by increasing investments in infrastructure,
due to the country being positioned as an attractive tourist destination in addition to the
increase in residential and non-residential units. Although Dubai is expected to witness
a softening in the prices of certain developments and is forecast to gradually slide into
a correction phase before consolidating, we maintain a positive outlook for the overall
UAE real estate sector in 2008-09, fundamentally driven by Abu Dhabi and its huge
demand-supply imbalance, in combination with the following factors:
• Solid macroeconomic foundation with GDP growth projection of 7.8% in 2008, on

the back of sustained oil earnings and robust public infrastructure investments.
• Continuous economic diversification, coupled with huge fiscal surplus, over the
years has led to huge public expenditure on real estate projects. To-date, total
existing and planned real estate projects are estimated at USD62tln.
• Due to the dollar-dirham peg, the declining US dollar has made UAE property
cheaper for Europeans and Asians, both of which account for approx. 75% of
UAE’s real estate investors.
• Stubbornly high inflation rates (2008F-12.3%) will make the sector flourish as
property is used as a hedge against inflation. As rising rental costs remain the
primary catalyst of the climbing inflation rate, the trade off between renting and
owning becomes more skewed towards owning property.
• UAE has one of the highest population growth rates in the world. This, coupled
with the influx of expatriates, has led to an increase in demand for residential
units.
• Rising income levels in the UAE also account for the strong demand for real
estate, which is currently at the low end of the range for real estate prices among
countries of similar per capita income levels. UAE’s average annual per capita
GDP is estimated at USD45,000.
• Abundant liquidity due to the relatively low impact of the subprime crisis and easy
mortgage availability has kept demand for real estate high.
• Setting up of regulatory bodies and the introduction of investor-friendly foreign
ownership laws in the country have boosted investor confidence in the sector.
Growth in real estate transaction volumes in the GCC in 2007

70
60
50
40
%
30
20
10
0
UAE Oman Qatar Saudi Kuwait Bahrain
Arabia
Source: Global Property Guide, KFH
REFER TO DISCLAIMER & DISCLOSURE AT THE END OF THIS PUBLICATION

UAE Real Estate
The dilemma for investors in the UAE real estate market is to assess the “true”
demand for future housing supply, and also the reliability of planned supply.
Planned supply of housing units is not expected to exceed demand for the next
2 years. We estimate that unit supply will be approximately 180,000 units for
the three year period between 2008 and the end of 2010. However, in 2007, only
approx. 30% of planned units were actually delivered, as the industry was hit by
several production constraints. Most notably, contractors were constrained by
an extremely tight labour market compounded by a new labour law that required
much of the existing labour force to return home and reapply for residence visas
as part of the amnesty programme. As these issues have been resolved, we
should see a gradual improvement in contractors meeting delivery schedules.
Currently, demand for real estate in the UAE is greater than the available supply.
There is still a shortage of units in the residential and commercial segments due to the
unprecedented economic boom, high employment growth, regularity at which foreign
companies are setting up base in the country, and huge inflow of expatriates. Dubai
has by far been the largest emirate in terms of real estate activity. This is followed by
Abu Dhabi, which is currently engaged in real estate development projects estimated
at USD136.2bln and has also witnessed the highest escalation in rents and property
prices.
Although, the Dubai property market is crowded with several mega projects in the
pipeline, signaling an expected oversupply situation, most of the projects are still under
construction. Moreover constant delays in the delivery of new property has fuelled the
demand for available property, and hence led to greater appreciation in rents and
prices. There is a greater supply deficit in Abu Dhabi, ensuring huge opportunities for
developers.
The pent-up demand would require enormous supply in order to be satiated. This
latent demand offers more security to developers rather than external demand, which
to a large extent is the case in Dubai. The relatively immature and unexploited real
estate markets of other emirates like Ajman, Ras al Khaima and Fujairah are also set
to provide new avenues for investors, thus making the UAE a lucrative market in the
years to come. Nevertheless, the UAE real estate sector may begin to face the risk of
oversupply of certain types of developments (Dubai in 2010 and Abu Dhabi in 2013)
given the aggressive capacity expansion plans in recent years.
Demand Drivers for Real Estate

1) Solid macroeconomic foundation
The UAE is expected to The UAE is expected to maintain its solid track record for economic growth in 2008,
maintain solid economic with real GDP growth forecast at 7.8% on the back of the surge in oil prices in the past
growth in 2008, with real GDP few years and strong regional liquidity. The downturn in the US is not likely to have
growth forecast at 7.8%
a significant impact on the UAE, as growth continues to be underpinned by robust
government spending and new private sector investments in the non-oil sectors.
Furthermore, private consumption growth will remain strong given the continued
expatriate population growth in the country and robust consumer confidence. Moving
forward, the non-oil sectors which include financial services, tourism, industry and
real estate will continue to drive growth in the UAE. According to the UAE Ministry of
Economy, the biggest contributor to the UAE’s GDP is the fast emerging real estate
sector. In 2007, the sector contributed 8% to the country’s GDP.
4
UAE Real Estate
UAE’s Real GDP Growth Trend

14
12
10
% Change
8
6
4
2
0
2001 2002 2003 2004 2005 2006 2007 2008F
Source: Central Bank of UAE, KFH Estimates
UAE’s Real Estate Sector Contribution to GDP

9
8
%
6
2004 2005 2006 2007 2008F
Source: Central Bank of UAE, KFH Estimates
2) Public expenditure and huge fiscal surplus

A significant proportion of On the fiscal front, we expect the budget surplus in 2008 to grow higher to USD54.5bln
the government surplus is or 28.0% of GDP on the back of higher oil revenues and likely controls on government
invested in real estate spending to reduce inflationary pressures on the economy. The fiscal balance in 2007
was healthy at USD49.9bln or 27.6% of GDP, on the back of UAE’s low levels of public
debt and higher revenues generated from the oil and gas sector. In 2007 approximately
USD 0.4bln was allocated for infrastructure development while USD0.3bln was set
aside for projects including real estate. As most of the development in real estate is
undertaken by government-owned companies, a significant portion of these surplus
funds is invested in government-sponsored real estate projects and infrastructure.
Fiscal Position Trend (2003-2008F)

60,000 35
50,000 30
25
40,000
USD mln
20
%
30,000
15
20,000
10
10,000 5
0 0
2003 2004 2005 2006 2007 2008F
Fiscal balance Share of GDP (RHS)
Source: Central Bank of UAE, IMF, KFH
5
UAE Real Estate
3) Dollar-dirham peg
The dirham-dollar peg has On the currency front, the UAE dirham has been fixed against the US dollar for
made UAE property cheaper decades. However, the dollar-dirham peg restricts the ability of the central bank to
for Europeans and Asians influence interest rates, inflation and the real value of its currency, as it has to mirror
investors
the US monetary policy to protect the dirham from market speculation. Although
the declining US dollar has reduced the dirham’s purchasing power against other
currencies, causing an increase in local inflation rates and increasing costs of imports,
it had made UAE property cheaper for Europeans and Asians given that approximately
75% of investors in UAE’s real estate are from Europe and Asia.
USD/AED
Source: Bloomberg
Interest rate cuts have made Following a cut in US interest rates on 18th Sept 07, the UAE cut its interest rates
mortgage on UAE properties on the one-week and one-month Certificates of Deposit by 15 basis points to 4.60%
cheaper and 4.70%, respectively, despite clear prospects of exchange rate losses and an
increase in inflation. Subsequently, the central bank trimmed its repurchase rate five
times from 4.5% in December 07 to 2.00% by 1st May 08 (12th Dec 07 by 50bps to
4.25%, 23rd Jan 08 by 75bps to 3.5%, 31st Jan 08 by 50ps to 3.0%, 19th Mar 08
by 75bps to 2.25% and 1st May 08 by 25bps to 2.00%). The interest rate cuts have
made mortgages on UAE properties cheaper, thereby contributing to an increase in
investments in the real estate sector.
UAE’s Repurchase Rate Trend (12th Dec 07-1st May 08)

5.00
4.00
3.00
%
2.00
1.00
0.00
Pre 12 Dec 07 12 Dec 07 23 Jan 08 31 Jan 08 19 Mar 08 1 May 08
Source: Central Bank of UAE, KFH
There has been speculation that the UAE may change its current policy of pegging
the dirham to the USD. The UAE government has, to this point, stated that it would
prefer to address any currency policy changes in tandem with the other members of
the GCC. However, in our view, the government will have to address this issue alone
in the next 18 months if inflation starts to effectively crimp economic development.
6
UAE Real Estate
Additionally, we feel the necessary institutions (monetary policy committees or

instruments) are not in place yet to manage a free floating currency. Therefore, we
expect to see a move to a basket of currencies and a gradual revaluation.
A stronger currency would improve our long term outlook for the real estate sector,
but would slow price appreciation in the near term. Essentially, we feel it would slow
foreign speculative demand for real estate in the near term, but provide for a more
stable operating environment for developers and contractors in the longer term.
4) Record high inflation rates

The UAE’s real estate sector The UAE’s real estate sector will continue to flourish amidst stubbornly high inflation
will continue to flourish rates as property is used as a hedge against inflation. Inflation has overtaken official
amidst stubbornly high lending rates in the UAE, making it cheaper for people to borrow than to keep money
inflation rates as property in deposit accounts, thus encouraging investments in real estate, the main driver of
is used as a hedge against
the surging cost of living.
inflation
The UAE’s inflation rate was already high at 9.3% in 2006 (2001: 2.8%), underpinned
by a surge in domestic demand on the back of high economic growth over the years.
This caused price pressures, in particular in the real estate market and in certain
areas in the services sector. Given the recent interest rate cuts, inflation is projected
to trend higher to 12.3% in 2008 (2007: 11%) as lower interest rates will result in
higher liquidity and credit growth. Inflation in the UAE is driven mostly by increased
consumer spending. However, the consumer price index (CPI) in the UAE will slide
to 8% by the end of 2009 after scaling higher than 12% this year. Spiraling rents
which account for more than 50% of the consumer price inflation will soften with more
residential units coming to the market.
Inflation Trend
14
12
10
% Change
8
6
4
2
0
2002 2003 2004 2005 2006 2007 2008F
Source: UAE Central Bank, KFH Estimates
A survey shows that high inflation in Dubai has pushed up its ranking, from 73rd
place in 2005 to 25th in 2006 and 10th in 2008, as one of the most expensive cities
in the world, underpinned by rising cost of leasing and renting. Office rents in Dubai
have soared 30.7% during the past twelve months, making Dubai the tenth most
expensive city in the world, more expensive than New York’s Manhattan, For instance,
on the commercial front, rental rates for office space in Dubai have tripled, rising from
USD24.5/sq ft in 2005 to USD125/sq ft per annum in 2008 with office occupancy rates
at an all time high of 98%.
Recognising rising rental costs as a primary catalyst of the climbing inflation rate, the
UAE government announced plans to implement a series of measures to curb soaring
rents in the residential and business sectors.
7
UAE Real Estate
These include restricting rental increases and expediting completion dates of new
housing projects. In December 07, the government lowered its rent cap from 7% to
5%, though adherence to this is questionable as rental prices continue to skyrocket
and demand for property outstrips supply. Thus, trade-off between renting and owning
continues to be skewed towards owning due to rising rents and an expectation of
price acceleration in the future.
Expect the pace of real We expect the pace of real estate price appreciation to accelerate in 2008 at
estate price appreciation approximately 28% as inflationary pressures are passed on to consumers. Price
to accelerate in 2008 at appreciation should begin to slow in 2009 as more supply is delivered. However, we
approximately 28% as
still expect a brisk increase of 17% in 2009. The gap between the high- and low-end
inflationary pressures are
of the market should widen, as we expect a lack of affordability to impact the low-end
passed on to consumers
of the realty market first and consumers will further differentiate developments by
location and quality. The difference between the 5th and 95th percentiles is anticipated
to grow from 165% in 2007 to 204% by 2011. The main driver of price appreciation
should be rental yield compression. We have projected that yields should decline
approximately 240 basis points to 5.35% over the next 4 years, as the rental market
becomes more competitive and the rent/own trade-off continues to move in favour of
ownership. Appreciation in rental costs should slow. We project 8% growth in rental
prices for 2008, slowing to 3% by 2010.
UAE Real Estate Projections

General Projections - UAE Residential Market
2007 2008F
Avg. Price(USD/sq.ft.) 384 494
95th Percentile(USD/sq.ft.) 817.6 1070
5th Percentile(USD/sq.ft.) 308.6 382.3
High/Low Differential 165% 180%
Avg. Annual Rent(USD/sq.ft.) 30 32
95th Percentile Change in Rent 9.70%
5t Percentile Change in Rent 3.80%
Avg. Rental Yeild 7.72% 6.47%
Avg. Change in Rents 8%
Avg. Price Appreciation 28.87%
Source: Globalpropertyguide.com, KFH
Moreover, supply constraints exist throughout the UAE construction industry. Owing
to significant demand on a global basis, there is little the UAE can do to address the
issue of inflation other than a change in the currency regime. In the near to medium
term, we expect the pricing power of the developers to continue. Hence, they should
be able to cover cost inflation with price increases. However, we do expect that, in the
longer term, there is the threat of prices striking potential purchasers out of the market.
In the worst case scenario, the pass-on effect of inflation could lead to a drying up of
liquidity, followed by substantial price declines. We expect the UAE government to
address the problem prior to reaching this extreme scenario.
5) Population growth
Real estate demand has been The UAE has one of the highest population growth rates in the world, led by an influx
supported by substantial of new residents and strong growth in the construction sector. The construction sector
population growth over the accounts for a fifth of UAE’s total workforce.The demand side of the equation for real
last 5 years estate has clearly been supported by substantial population growth over the last 5
years. The UAE population has grown at a CAGR over 7% since 2002 and is projected
to grow at a CAGR of approximately 5% over the next 5 years.
8
UAE Real Estate
Population Growth
2008
2007
2006
2005
2004
2003
2002
0 1 2 3 4 5
mln
Source: UAE Central Bank, KFH
Moreover, approximately 30% of the UAE’s total population falls within the age
category of 15 years. In the next decade, this young population group will form a
sustainable demand for real estate.
6) Rising per capita income levels

In our view, new households alone are not the only drivers of demand. We contend
that affordability and rising income levels must be considered in the demand equation
as key drivers for the real estate industry.
UAE Per Capita Income Trend

50,000
45,000
40,000
35,000
30,000
USD
25,000
20,000
15,000
10,000
5,000
0
2002 2003 2004 2005 2006 2007 2008
Source: UAE Central Bank, KFH
While real estate values have To assess the current property valuations in the UAE market, we have compared real
come a long way over the last estate prices per square meter relative to per capita GDP throughout the world. The
5 years, however on a relative UAE is currently at the low end of the range for real estate prices among countries
income basis, there is still
of similar income levels (its per capita GDP is USD45,000). For countries with per
room for higher valuations
capita GDP of between USD35,000 and USD45,000, the real estate price range is
USD359.5/sq ft to USD1460 /sq ft. The prevailing value in the UAE is at the low end
of the range at USD406.6/sq ft. We contend that while real estate values have come a
long way over the last 5 years, on a relative income basis, there is still room for higher
valuations.
9
UAE Real Estate
Gross Rental Yields vs. Per Capita GDP Residential Prices vs. Per Capita GDP
10 16
Sq ft Residential Prices '000 USD

9 Malaysia 14 France
8 UAE Hong Kong
Gross Rental Yeild %
Germany 12
7 S'pore Japan
6 Brazil 10
Japan
5 8 Italy
Hong Kong Italy
4 France
6 Spain UAE
3
Spain S'pore 4
2 Malaysia
1 2 Germany
Brazil
0 0
0 10 20 30 40 50 0 10 20 30 40 50
Per Caita GDP '000 USD Per Capita GDP '000 USD
Source: GlobalPropertyGuide.com, IMF, KFH
Average rental yields in the Average rental yields in the UAE, between 7.7%-8%, are substantially higher than the
UAE are substantially higher levels in countries of similar income range. Rental yields tend to decline as income
than in countries of similar levels improve. This tendency is driven by the increased ability of the population to
income range
finance the purchase of real estate rather than rents.
Moreover, price appreciation in the secondary real estate market is driven primarily by
affordability ratios rather than population growth. Essentially, we feel that the biggest
impact to demand is the move from renting to owning property. In this case, both the
availability and cost of mortgage finance are key drivers of demand. According to data
from the UAE Government and the IMF, mortgage finance is still at low levels relative
to global norms. It currently stands at 5.9% of GDP in the UAE, compared to 130%
in the US, 70% in the UK, and even 10% in Mexico. At prevailing mortgage rates
(7% to 7.5%), a monthly payment (including principle payments) will equal between
USD3.12/sq ft and USD3.3/sq ft compared to USD3.5/sq ft cost to rent. Embedded
in the premium to own is not only the principle payment but also the additional utility
value for aspects such as: predictability of future payments, potential future property
appreciation, and general enjoyment from ownership. Additionally, the combination
of declining interest rates and increasing rental charges make the cost/benefit trade-
off even more attractive. As the trade-off between renting and owning continues to
become more attractive in the UAE, we expect a further enhancement to demand
beyond that of new households moving to the UAE.
7) Abundant liquidity
Less impact of subprime crisis in the UAE – So far!
To date, the UAE economy has been fairly insulated from the subprime crisis, mainly
owing to the following reasons:
• UAE’s huge pool of liquidity with current account and fiscal surpluses at USD46bln
and USD49.9bln respectively for 2007 has cushioned the country from the
subprime crisis.
• UAE markets have proven their low correlation or immunity to developments in
global capital markets given the domination of local retail investors in the region.
Their low levels of Western institutional ownership have insulated the country
from the ebbs and flows of general emerging market fund flows.
• The direct exposure of UAE corporations and banks to the US subprime is almost
negligible (<1% of total assets with bulk of exposure concentrated in structured
products of high investment grade).
• Oil accounts for only 45% of total UAE exports and oil revenues are denominated
in dollar. As the dollar weakens against global currencies, oil-producing countries
are more likely to increase oil price to offset the relatively lower oil earnings.
10
UAE Real Estate
• UAE has gradually diversified its export markets, from traditional US market to the
EU, Japan and the rest of Asia. Given that exports to the US contribute less than
2% of the UAE’s total exports, the country’s export earnings will not be directly
affected by an expected slowdown in the US economy moving forward.
Due to the above factors, the UAE has remained relatively immune to the liquidity
crunch in the West, thereby sustaining high investments in the realty sector. It is worth
noting, that ‘abundant liquidity’ in the country is largely in terms of domestic liquidity.
The US subprime liquidity woes have also failed to dent the UAE real estate mortgage
market. The mortgage market in the region remains competitive, with more banks
including Islamic Banks, entering the arena. Mortgage lending in the UAE almost
doubled in 2007 amid a real estate boom with total home loans worth USD16.02bln
as against USD8.5bln in 2006. Banks have boosted their mortgage offerings,
encroaching on the market share of home financiers like Amlak Finance, which has
been expanding in new markets, including Egypt and Saudi Arabia, as competition
intensifies at home.
The mortgage market in the Moreover UAE’s commitment to the dollar-dirham peg which has forced it to track
region remains competitive, seven US interest rate cuts since September 2007 has pushed down home loan
with more banks, including rates across the country as inflation soars. Inflation has overtaken official lending
Islamic banks, entering the
rates in the UAE, making it cheaper for people to borrow than to keep money in
arena
deposit accounts, thereby encouraging investments in real estate, the main driver of
the surging cost of living. Interest rates have decreased, although the interbank rate
cuts have not been fully passed to customers. Some banks have reduced their Loan-
to-Value (LTV) ratios to reflect global credit conditions and to comply with indications
from the UAE Central Bank that LTV ratios will possibly need to be capped at 85% in
the future. This may reflect a feeling among some banks that the market in Dubai is
at risk of overheating. ‘Buy to Let’ mortgages are now appearing in Dubai, with some
banks now willing to include future rental earnings from a financed property when
calculating the customer’s repayment ability. Tamweel, for example, will allow a LTV of
75% for such properties, and include 75% of the future rental income in the repayment
calculation. This type of mortgage is only available for completed properties.
Key UAE Mortgage Lenders and Terms of Loans

Lender Rate Loan to Loan to Maximum
(Interest or Value Value Non- Term
Profit) % Residents (%) Residents (%) Years
ADCB 6.75-7.25 90 N/A 25-30
Amlak 6.5-8.75 90 70-80 20
Barclays 7.25-8.55 90 75 25-30
CBD 6.0-6.75 80 N/A 25-30
HSBC 7.25-8.25 75-85 75-85 25
Lloyds TSB 7.99 70-85 65-70 15-20
NBD 6.25-7.5 85 60-70 20
Noor Islamic 7.0-8.25 90 N/A 30
RAK Bank 6.95-8.7 75-90 75 25
Standard Chartered 5.75-6.25 90 N/A 20
Tamweel 7.4-8.65 95 70 25
Source: Various Banks, KFH Estimates
11
UAE Real Estate
8) Availability of Islamic Financing

The emergence of Islamic Banks in financing loans and mortgages in the UAE has
also provided more options to the UAE investors. Amlak Finance and Tamweel, the
leaders of the UAE mortgage market, with 60% market share collectively, are both
Shariah compliant. Given that the majority of the Dubai residents are Muslims, Shariah
compliant lenders are likely to capture the larger market share in future as well. Some
people argue that Islamic mortgage is high-priced. The fact is that the borrower may
be paying a bigger amount as “down payment” compared to conventional mortgage,
but will also get a better payment plan afterwards. This is the reason that non-Muslims
are also getting increasingly interested in this type of home finance. Meanwhile it
is also possible that non-Shariah compliant mortgages get rescheduled as Shariah
compliant during the mortgage term.
However there are speculations that UAE banks should be more careful in providing
excessive real estate mortgages as it could be hit by a credit crunch similar to the
devastating US sub-prime crisis in the absence of a mortgage law. Although the lending
activity in the fast-expanding real estate sector has so far remained reasonable,
massive projects planned for the next few years could sharply boost financing
activities and deprive the banks the much-needed liquidity since real estate credits
are normally long-term loans. UAE has made great strides in tightening the property
market’s regulatory framework and now needs to have a mortgage law in place.
9) Legal changes to help build investor confidence

Each emirate endeavoring The changes and the approach towards revamping the real estate regulations in the
to frame regulations that will UAE have been positive from the investors’ point of view. The promulgation of new
create a unified property law property laws in the individual emirates, regulating the sale and lease of land and
buildings to citizens and expatriates, kick-started the property boom. The regulations
vary from emirate to emirate, with some, such as Dubai, permitting foreign residents
to purchase freehold properties in designated areas, whilst others, such as Abu
Dhabi, limiting the acquisition of property by expatriates to leasehold properties. The
land departments in each emirate are now endeavoring to frame regulations that will
eventually create a unified property law.
The major legal changes that have come in 2007 has been the passing of a broker’s
law, the passing of an escrow law, and the creation of regulatory authorities such
as the Real Estate Regulation Authority (RERA) in Dubai. Broker’s law came into
force in January 2007 in Dubai which stipulates that all brokers, both individuals
and companies, must be licensed with the Land Department. The department has
been assigned the role of training and certifying all brokers to ensure that property
transactions are conducted by licensed and trained brokers who are able to provide
proper advice and professional service to their clients. Moreover Dubai’s Real Estate
Regulatory Authority has announced the creation of a property court with operations
starting in September 2008. The other emirates are also following suit by designing
their own legal frameworks to protect the rights of all parties involved in real estate
transactions.
Although measures have been taken to design a legal framework to protect the rights
of the parties involved in real estate transactions in the UAE, the framework is still
immature as is the realty market in the country which is expected to evolve over
time. Despite the new regulations of property ownership in the UAE, there are still
material concerns in the legal and regulatory procedures including, but not limited to,
government approvals, mortgage laws, mortgage regulation, deed title registration,
residency issues and inheritance laws.
12
UAE Real Estate
Property Rights Index
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
0 10 20 30 40 50 60 70
Source: Wall Street Journal, KFH
Skepticism and uncertainty A subcomponent of the Index of Economic Freedom, the property rights index measures
exist due to the relatively new the degree to which a country’s laws protect private property rights, and the degree
legal framework to which its government enforces those laws. Higher scores are more desirable, i.e.
property rights are better protected. The UAE has a score of 40, which is surprisingly
the lowest in the GCC region. The index also assesses the likelihood that private
property will be expropriated and analyzes the independence of the judiciary, the
existence of corruption within the judiciary, and the ability of individuals and businesses
to enforce contracts. Protection of property rights is a significant factor affecting the
desirability of a residential real estate investment. In spite of huge investor interest
in the UAE realty market, skepticism and uncertainty exist due to the relatively new
legal framework and lack of information regarding the laws. However the formation
of the property courts in emirates such as Dubai would help in strengthening investor
confidence in the sector in the longer term.
Supply Side Bottlenecks / Challenges

• Rising cost of cement and raw materials has been challenging for the real
estate sector in the UAE. We estimate that raw material costs alone would be
approximately 19% higher in 2008.The UAE produces its own cement – 15
companies together produce 13.2mln tonnes of cement per annum. However,
production has fallen short of demand since the beginning of the construction
boom in 2003. The difference is met by imports – which has soared 74% from
1.70mln tonnes to 2.96mln tonnes in 2007. However, a stabilised market and a
looming price control intervention by authorities imply that prices may not remain
high indefinitely.
• The real estate and construction industries are facing a shortage of foreign workers
and coping with increases in the cost of labour. Approximately 43% of all foreign
workers in the UAE are Indians, making the Emirates particularly vulnerable to
fluctuating currencies and rising wages in India. Based on estimates, in 2005 an
Indian worker earning USD80 to USD125 (Dh255 to Dh424) in the Gulf could
earn twice as much as he could at home by signing up to a three-year contract
in the GCC. In 2008, the same worker could earn USD250 a month in India,
while wages in the GCC have been fixed at the original contracted amount, thus
reducing the incentive to work overseas. Moreover, amnesty for illegal workers
in 2007 saw more than 250,000 workers leaving the country. This in turn led to
manpower supply issues and rising salaries among the unskilled workforce.
13
UAE Real Estate
• Delays and cancellations in the delivery of projects in the UAE is also a major supply
side issue. There are currently more than 160 projects facing delays; nevertheless
we expect this number to fall as industry bottlenecks are addressed.
• Property markets are driven by supply, demand and finance. At present mortgage
rates in the UAE are high by international standards and require a monthly mortgage
payment of approximately USD5,000 per month on a USD565,500 apartment in
Dubai Marina. For the average Dubai executive this monthly payment is beyond
affordability. The cost of mortgage has become even more crucial to sustaining
the real estate market as projects near completion and occupation.
Supply side bottlenecks have The UAE government has been constantly taking measures to deal with these supply
kept the demand-supply gap issue, however, it becomes important to mention at this juncture, that till the time
intact leading to high prices supply side bottlenecks remain in the real estate and construction sector, the demand-
supply gap will continue to exist thus putting an upward pressure on property prices
and hence making the market more profitable for both developers and investors.
SWOT Analysis of UAE Real Estate Sector
Strengths Weaknesses
Solid Macro-Economic Rising cost of cement and

Foundation raw materials
Huge Fiscal Surplus Increasing cost of labour
Dirham-Dollar Peg Delays and cancellations in the
Record High Inflation Rates delivery of projects
Population Growth High mortgage rates by
Rising Per Capital Income Levels international standards
Abudant Liquidity
Legal changes to help build
investor confidence
Opportunities Threats
Attractive Rentals Ambiguities in Legal Structure

Unexploited markets off: Lack of statistics regarding
Abu Dhabi availability and yields
Ras Al Khaimah
Ajman
Source: KFH Research
UAE vs. Other GCC Countries

The real estate boom is the GCC has been nothing short of spectacular. With an
ever increasing number of projects underway, the industry is attracting investors who
are shifting their focus from stock markets to the real estate sector. The UAE alone
contributes around 60%of the property boom in the GCC countries with Dubai leading,
with a share of 47% among the GCC nations. Abu Dhabi will take over the lead in the
next 2-5 years as the emirate accounts for 14% of the market in the entire GCC.
14
UAE Real Estate
Comparison of Rentals and Yields in the GCC (Sept 08)

City/Project Prime Rent Prime Rent Prime Yeild Outstanding Investment
Details Office Retail Office Mega Volume
(USD/sq ft)p.a. (USD/sq ft)p.a. Space Project (USD)
Dubai 95.5 120.6 8.10% Downtown Burj 20bln
Abu Dhabi 81.7 98.0 7.50% Saadiyat Islands 27bln
Kuwait City 70.8 211.0 10.00% Silk City 86bln
Manama 43.7 98.0 9.00% Bahrain Bay 1.5bln
Doha 48.2 90.4 8.00% City of Lusail 5bln
Muscat 37.7 - 9% Blue City 15bln
Riyadh 43.7 90.4 10.00% NBIC Riyadh 0.7bln
Source: GCC Real Estate Developers, KFH Research
To sustain the boom for as long as possible, the GCC countries are liberalising laws
and regulation to establish an organized and transparent real estate sector with a
view to attract foreign investors. To diversify their base away from the conventional oil
dependence, these countries are broadening the scope of their economies to develop
their financial sector, tourism, trade and industry. The front-runners here are UAE
and Bahrain, with Dubai, in particular, drawing the global public’s attention with its
spectacular and visionary construction projects.
Dubai
Approximately 2,329 land Dubai’s real estate market is experiencing rapid growth after the regulatory changes,
plots were sold in Dubai allowing freehold ownership for expatriate investors and setting up of a real estate
during April-June in 2008 regulatory authority (RERA). The total value of land transactions in Dubai last year
for USD7.74bln as against
was USD12.94bln. Approximately 2,329 land plots were sold in Dubai during April-
USD2.94bln for the same
period in 2007 June in 2008 with a combined value of USD7.74bln as against USD2.94bln for the
same period in 2007. This reflects an overall rise in prices and demand for space
across the emirate.
Land Transactions in Dubai-2007
2.5
2
USD bln
1.5
0.5
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Dubai Land Department, KFH
Dubai land sales 2008

3.5
3
2.5
USD bln
2
1.5
1
0.5
0
Jan Feb Mar Apr May Jun
Source: Dubai Land Department, KFH
15
UAE Real Estate
The land sales in the emirate are expected to go up further in the coming months
as the Dubai Strategic Plan 2015 gains momentum. The demand for space which is
augmented by the developmental policies of the Government of Dubai is expected to
hold strong in the future.
Saturation might come Real estate projects are expected to accelerate in response, as supply increases to
for certain types of cater to the expatriate demand. The growth curve of Dubai’s property market has not
developments in Dubai reached its peak and it is still very early to predict ‘a bubble burst’. There will be growing
need for more real estate developments in Dubai in the short term. While the idea of
the market suffering a bubble burst is ruled out for the next 2-3 years, saturation might
come for certain types of developments as a result of misinterpretation and lack of
statistics regarding demand-supply indicators in the market. For instance lack of data
regarding actual demand for high-rise apartments might result in excess production
of those units.
The real estate cycle dynamics reveal that Dubai is heading towards
equilibrium
Dubai
Equilibrium
Allocation
Fal
li 5%
20% 10% Ma ng
Asset
30% rke 20%

35% t
30%
50%
ry 75%
ove
40% Rec 55%
30%
Early Stage Strong Growth Slowing Recession

Core Value Added Opportunistic Real Estate
Economic Stages
Source: GRP Real Estate, KFH
Chart Analysis: The figure summarises the real estate sector dynamics and correlates
it with various economic stages. The real estate market matures as the economy
reaches the state of slow growth and the share of investment in opportunistic property
assets diminishes.
Core: Assets that achieve relatively high percentage of return from income and that
are expected to exhibit low volatility.
Value Added: Assets that exhibit one or more of the following attributes—achieve a
significant portion of return from appreciation, exhibit moderate volatility and/or are
not currently considered core property types.
Opportunistic: An asset that is expected to derive most of the return from appreciation
or which may exhibit significant volatility in returns. This may be due to a variety
of characteristics such as exposure to development, significant leasing risk, or high
leverage, but may also result from a combination of moderate risk factors that in total
create a more volatile return profile.
More importantly, developers in Dubai have increasingly overlooked one of the most
salient aspects of real estate: maximizing development returns is not purely a function
of building as much as possible i.e. supply increase. This would eventually lead to a
saturation of demand and hence a correction in prices.
16
UAE Real Estate
Buyers of Property in Dubai

GCC & Arab Iranians
Nationals 12%
13%
UAE
Nationals
15% Asians
40%
Europeans
20%
Source: Zawya, KFH
Real estate units sold in the With 80% of the total population comprising of expats in the UAE, total real estate
country are skewed towards units sold in the country are skewed towards the expat population. Asians top the
the expat population list of property buyers in Dubai. 40% of the buyers of real estate in the Emirate are
from Asia while 20% of the real estate units are bought by Europeans. Moreover
different types of properties cater to different sections of the society. For e.g. demand
for Condos is dominated by seasonal home buyers and short term expats especially
single professionals. However the seekers of offices or commercial spaces are high
net worth investors.
Types of Property and Classification of Buyers

Type Buyers
Condos Vacation, seasonal home buyers, short term expatriate couples,
single professionals
Villas Primary home for families and Long term expatriate couples and
Investors
Offices Currently dominated by market movements and investors
Source: KFH Estimates
Expected Investor Involvement in Buying Real Estate Assets in Dubai

Property Market 2003-05 2006-10 2010
Phases (Boom) (Growth) (Stability)
Investor Base Investor Involvement
Foreigners High Moderate Maintained
High Net Worth Individuals High Moderate Declining
Expats- High Income Moderate Increasing Increasing
Expats-Mid Income Low Increasing Increasing
RE Agencies High Moderate Increasing
Speculators High Moderate Diminishing
Source: KFH Estimates
Chart Analysis: The fig. summarizes how the role of Dubai’s various residential
property investors will evolve. High net-worth individuals, real estate agencies and
speculators were the main investors initiating Dubai’s property boom in 2003. The
phase of steady growth that started in 2006 will continue till 2010 and demand will be
driven by a different set of investors’ i.e. expatriates buying properties either as an
investment or to avoid paying escalating rents.
17
UAE Real Estate
Housing Market Performance

Expect Dubai’s cumulative In Dubai, we expect cumulative housing supply to overtake cumulative housing
housing supply to overtake demand in early 2011. We expect actual deliveries to ramp up from an estimated
cumulative housing demand 17,000 units in 2007 and peak at roughly 66,000 units in 2010. On the demand
in early 2011 side, we expect incremental household growth to taper off in 2009 and 2010, before
picking up again in 2011 as much of the required personnel for the expected hotel
launches and other tourism related projects begins to offset declines from financial
and development sector growth.
Dubai Expected Supply vs. Demand Dubai Exp. Deliveries & Household Growth
300 70
250 60
50
200
'000 Units
'000 Units
40
150
30
100
20
50 10
0 0
2007 2008F 2009F 2010F 2011F 2007 2008F 2009F 2010F 2011F
Dubai Expected Demand Dubai Expected Supply Dubai Expected Deliveries Household growth
Source: Government of UAE, KFH
Housing Prices
Slowing growth in terms of new household entrants to Dubai should relieve some
pricing pressure in 2009. However, we believe much of that relief will be mitigated by
existing pent-up demand through 2010.
Capital Growth Appreciation (Launch to Current Price)

250
200
150
%
100
50
0
The Dubai Dubai JLT Discovery Internat'l
Greens Marina Marina Garden City
(Emaar) (Private)
Source: Real Estate Agents, KFH Estimates
Expect the gap between The huge supply, targets a number of different income groups, with each having
the high and low end of the distinctive market forces. The gap between the high and the low end of the market
market to widen by 2010 should widen, as we expect a lack of affordability to impact the low end of the market
first and consumers to further differentiate developments by location and quality.
18
UAE Real Estate
Market Segment vs. Availability of Supply
Price/sq ft
High Business, Bay

End Burj Dubai, Old Town,
Income Dubai Marina
2000
Middle Int’ l City,

Income Dubai Sports City,
Segment Discovery Gardens
1000
Low Government,
Cost Dubai Municipality
Housing
Few Abundant
Expected Supply Availability
Source: GRP Real Estate, KFH
Housing Rental
There has been a slowdown There has been a slowdown in the rate of increase of residential rents. The major
in the rate of increase of reason for this slowdown is the recent availability of housing units, especially with the
residential rents with the delivery of International City and the handover of several towers at Jumeirah Lake
delivery of new developments Towers and Downtown Burj Dubai. The reduction of the rent cap from 7% to 5%,
however, does not seem to have had much of an impact.
Average Annual Rent of a 2-Bedroom Apartment in Dubai

60,000
50,000
40,000
USD
30,000
20,000
10,000
0
2004 2005 2006 2007 2008F
At present, Palm Jumeirah and Old Town Burj Dubai areas in Dubai command the
highest annual rents, with studio and one-bedroom annual rentals at USD33,333
and USD46,666 respectively. On the other extreme, the lowest rentals can be found
at International City with studios ranging from USD15,000 and one-bedroom units
available at around USD18,333.
19
UAE Real Estate
Average Annual Apartment Rent

70,000
60,000
50,000
40,000
USD
30,000
20,000
10,000
0
JBR Tecom Al Dubai The Internat'l
Barsha Marina Greens City
Studio 1 Bedroom 2 Bedroom 3 Bedroom
When comparing year-on-year rental changes in Dubai, the highest increases were
observed at the Greens for studios where average annual rents increased from
USD17,500 to USD23,000, marking a 31% increase July 2008. Interestingly, two-
bedroom units at International City witnessed a 36% increase in rents (from USD19,000
to USD26,000) when compared to the same period last year. The rental increase
seen at International City is mainly due to relatively fewer two-bedroom apartments
available at that price.
Dubai Residential Market Valuation
50 600
40 500
400
30
300
20
200
10 100
0 0
Q4 2006 Q4 2007 Q2 2008
Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft)
Source: Colliers International, KFH
Office Market Performance

Office space in Dubai is Office space in Dubai is expected to grow by 125% within the next three years to
expected to grow by 125% 600mln sq m from 260mln sq m at the end of 2007. City’s 320mln sq m of office space
within the next 3 years to is almost occupied, resulting in high rents as growing working population puts more
600mln sq m from 260mln sq
pressure on the available properties.
m at the end of 2007
Total Office Supply Growth

700
600
500
Mln Sq m
400
300
200
100
0
2007 2010F
20
UAE Real Estate
Limited delivery of new office accommodation has resulted in a persistent undersupply,

precipitating double-digit growth (42%) of rental rates year on year, supported by
vacancy rates of less than 2% across the market. However, a correction at all rental
levels is expected starting 2010, as new supply of offices becomes available.
Cost of Rent-Commercial Sector Cost of Purchase-Commercial Sector

140 1,400
120 1,200
100 1,000
USD/sq ft
USD/sq ft
80 800
60 600
40 400
20 200
0 0
DIFC S.Z. Road JLT Tecom DIFC S.Z. Road JLT Tecom
Dubai is one of the most Dubai International Financial Centre and Sheikh Zayed Road are the most expensive
expensive business cities in business locations in the city. Commercial property prices are highest at Dubai
terms of commercial rents International Financial Centre (USD 1,266.8/sq ft), followed by Dubai Marina (USD
906.2/sq ft). Once ready, Business Bay will overtake Sheikh Zayed Road as the prime
area for business and trade in Dubai, the reason being the iconic tower of ‘Burj Dubai’,
the tallest structure in the world. Price index for office space in Dubai is expected to
experience a 30% to 35% hike in the rates for 2008/2009. The commercial real estate
sector in Dubai has outperformed the residential market in terms of investments
and growth potential in the last three years and a major windfall for investors in this
segment in the near future is foreseen.
Dubai Office Market Valuation
50 600
40 500
400
30
300
20
200
10 100
0 0
Q4 2006 Q4 2007 Q2 2008
Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft)
Moreover, Dubai will account for 71% of the total Gross Leasable Area (GLA) in the
UAE in 2 years. Dubai (population 1.6mln) has approximately the same amount
of office space under construction as Shanghai (population 20mln) and Moscow
(population 10.4mln).
21
UAE Real Estate
International Office Market Comparison
20
15
GLA Sq m
10
0
Dubai London Moscow Singapore
Existing Supply Forthcoming Supply
Dubai is one of the most expensive business cities in terms of commercial rents
making it an expensive place to do business than well-established business centers.
However, Dubai’s commercial property selling prices are at the bottom, among
business cities around the world estimated to be approximately USD700/sq ft. This
in turn has resulted in abnormally high rental yields, which have reached an average
of 27% compared the global average of 8%.However, our research shows that rental
growth is slowing down. Rents have been affected in the main city, but on Sheikh
Zayed Road, occupancy rates remain in excess of 90%. The real estate rental
market will fragment into two distinct areas; that of old Dubai where rental rates and
occupancy will continue to decline and in New Dubai where strong demand will spur
the construction of new projects.
Rental Cycle Analysis Reveals That Dubai’s Commercial Rental Growth is

Consolidating
London Athens
Dubai
Paris
Frankfurt
Rental
Rents
Growth
Falling
Milan Slowing
Stockholm
Rents
Rental Growth
Bottoming
Moscow Accelerating
Out
Warsaw
Source: GRP Real Estate, KFH Estimates
Retail Market Performance

In its efforts to diversify the In its efforts to diversify the economy and to reduce its dependence on hydrocarbon
economy Dubai government revenues, the Dubai government has identified certain key industries to lead the
has identified certain key diversification process and generate alternative revenue sources. Amongst these
industries such as retail,
industries are tourism, leisure and finance, in addition to the airline industry and the
tourism, leisure and finance
retail industry. The equation is quite elementary – fly in the tourists and let them
shop! To this end Dubai has developed a highly successful marketing campaign that
22
UAE Real Estate
promotes the city as a leisure and shopping destination of choice for the region, and
the world. This has been achieved through the promotion of a number of Government
sponsored shopping festivals, namely the Dubai Shopping Festival and Dubai
Summer Surprises. A new generation of mega shopping malls, which includes Mall of
the Emirates and Mall of Arabia, are expected to firmly entrench Dubai’s dominance
in the retail industry throughout the GCC. The highly successful Mall of the Emirates,
at 223,000sq m gross leasable area (GLA), is currently the largest shopping centre in
the GCC, whilst the Mall of Arabia (Phase 1) will have a GLA of more than 400,000sq
m when it is launched in 2010. Dubai Festival City currently features an estimated
GLA of 195,000 sq m(with 58,000 sq m under construction), whilst the Dubai Mall is
expected to cover around 344,000 sq m of GLA.
Upcoming Retail Area in Dubai

Malls in Dubai Completion GLA (Sq ft)
The Dubai Mall 2009 34400
Mall of Arabia 2010 40000
Dubai Marina Mall 2008 7700
Oasis Centre 2008 6000
Sports City Mall 2009 14000
Mirdiff City Centre 2009 18300
This massive increase in the supply of retail space is likely to result in short-term
oversupply in the market.
Smaller and older malls are likely to experience sharp increases in vacancies, coupled
with downward pressure on rental rates.
Dubai Shopping mall rent

140
120
100
USD/Sq ft
80
60
40
20
0
Primary Secondary
UAE is second worldwide, Older malls will be forced to review their viability, and look at repositioning themselves
in terms of recreational to appeal to specific market segments. New, larger malls with strong tenant mixes,
shopping, behind only Hong should be able to maintain current absorption rates, but with reduced demand, could
Kong
experience a softening in rentals. Growth in population, as well as increased tourist in-
flow, should sustain and drive demand for all types of retail space, but predominantly
in larger, modern malls with high visitor attendances. In addition, world-class retail
malls offer a positive contribution to the city’s hospitality sector, luring tourists to the
world’s largest indoor ski slope, best in- class international brand retailers, and the
Dubai Summer Surprises and Dubai Shopping Festivals. UAE is second worldwide,
in terms of recreational shopping, behind only Hong Kong, where 34% of the people
shop once a week for ‘entertainment’ compared against 30% of UAE residents.
23
UAE Real Estate
Hotel Market Performance

Average annual hotel With over 30,000 hotel rooms in the Dubai market, 60% of which are classified as
occupancy was estimated to four and five star averaging an annual occupancy of approximately 85% in 2007 while
be 85% in 2007 achieving among the world’s highest room rates, it is evident that the UAE hospitality
sector has achieved acclaim amongst regional and international investors. While
skeptics sense that the market is unsustainable, and that occupancy rates are bound
to decrease as more hotels enter the market, our forecast indicates that the future still
looks bright. Based on an analysis of future supply the sector is able to absorb 8,000
to 10,000 rooms in addition to those estimated for completion over the next five years
while maintaining a market wide occupancy of 75%.
Hotel market’s optimism is attributed to fundamental ingredients that underpin the

market:
• The diversity of the product offering is growing:

With the inclusion of Travel Inn, Premier Inn, Holiday Inn Express, and Easy
Hotels joining Dubai’s growing hotel roster over the next few years.
• Airline capacity is increasing:

With the expansion of regionally based carriers such as Emirates Airlines, Etihad
Airways, Air Arabia, Jazeera Airways and the increasing presence of international
carriers such as Virgin Atlantic and Aer Lingus, competitive offers on airfare will
emerge as well as a variety of new inbound markets, increasing the potential
market of visitors to Dubai and the UAE to include price-sensitive travelers.
• Dubai as a brand is increasingly recognised globally:

Dubai’s hospitality market is In addition, to the brand value of Dubai prevalent in the GCC and Middle East;
expected to diversify in terms the number of expatriates in the market, the amount of international marketing
of products and prices undertaken both by the government and the private sector, and the targeted
marketing done by the DTCM, has created strong tourism markets from Western
and Eastern Europe, India, and South Asia. The pending approved destination
status by China to the UAE combined with the growth of Emirates Airlines and
Etihad Airlines, flights will further increase the potential market of visitors.
• Growth in cultural tourism to Abu Dhabi, the Northern Emirates, Fujairah and
Oman:
This will create a tourism triangle with Dubai at its core. The promotion and
growth of the neighbouring tourism markets and their differentiated positioning
from Dubai will create complementing destinations to the emirate and generate
additional demand from previously un-tapped markets.
Overall the hospitality market, over the next four to five years, is expected to remain
strong, and is forecasted to diversify both horizontally, in the type of product offered,
as well as vertically by price-point.
4*/5* Hotel Room Supply and Annual Growth Rate

60,000 0.5
50,000 0.4
40,000
0.3
30,000
0.2
20,000
10,000 0.1
0 0
2005 2006 2007 2008F 2009F 2010F
Room Supply Annual Growth Rate
Source: UAE Ministry of Tourism, KFH Estimates
24
UAE Real Estate
Major Upcoming and Existing Real Estate Developments in Dubai
Source: Google Maps
Developers in Dubai are As Burj Dubai registered UAE’s name in the book of world records, by becoming the
constantly coming up with tallest building in the world, Dubai government-owned property developer Nakheel
several unique and innovative announced plans to build a near mile-high tower, eclipsing the world’s tallest building.
mega projects
With investing in property in the UAE is seen as safe and rewarding haven, developers
in Dubai are constantly coming up with several unique and innovative projects.
Jumeirah Beach Residence - In 2007, Jumeirah Beach Residence near Dubai

Marina became the first freehold Dubai Properties’ project to be completed, when
approximately 6,500 apartments across 36 residential towers were handed over.
More than 2,000 families have moved into the apartments since then.
The World - The World is a man-made archipelago of 300 islands constructed in the
shape of a world map and located 4 kms off the coast of Dubai and is developed by
Nakeel Properties at an estimated cost of USD14.0bln. By January 2008, 60% of the
islands had been sold, 20 of which were bought in the first four months of 2007.
Palm Jumeirah - The Palm Jumeirah is now 20% complete. The handover of all
units is expected to take place by the end of 2008. Once complete, the development
will boast 940 two and three bedroom apartments and penthouses and a further 40
townhouses.
Palm Jebel Ali - The island is 50% larger than The Palm Jumeirah, and includes six
marinas, a ‘Sea Village’, a water theme park and water homes built on stilts between
the fronds and the crescent. The project is expected to be completed by Q4-2012.
In March, Nakheel, which is also developing the Jumeirah and Jebel Ali palms,
announced that the Deira project will be split into two parts – the palm-shaped island
and a Corniche. Now, following further studies and talks with potential investors, it has
released details of the revised plans.
25
UAE Real Estate
Palm Deira - world’s largest reclamation project - The Palm Deira is the world’s
largest reclamation project, with 1.14bln cubic meters of land being reclaimed. Already
a total of 198mln cubic meters of sand have been put in place. The new blueprint will
see the creation of nine different areas. Five islands will form the massive Corniche
– Deira, Al Mamzar, Central, South and North – which will be linked to a main Palm
Trunk, Palm Fronds, Palm Crescent and Palm Crown. Phase one – Deira Island – will
be the entrance to the entire development and will be connected by bridges to the
existing Deira district between the mouth of Dubai Creek and Port Hamriya. Transport
links will be integrated with existing road networks and the under-construction Dubai
Metro. According to Nakheel reclamation work was still on schedule to be finished by
2013 but completion date for the whole project is still not known.
Dubai Investment Park - More than USD6.6bln worth of residential projects are under
construction in Dubai Investment Park, bringing the park’s total investment value to
almost USD7bln. Phase 1 of Residential City, the mid-cost housing component of
Dubai World Central (DWC), a hugely ambitious 140sq km urban aviation community
under construction in Jebel Ali, has been sold out. The first residents are expected
to live in Residential City by June 2009, a move timed to coincide with full-fledged
operations at the world’s largest airport, Al Maktoum International Airport in Jebel Ali,
construction of which is currently well under way.
Dubai Waterfront - Dubai Waterfront is being built on an area bigger than Manhattan
and Beirut, offering investors over 250 master planned waterside communities
with mixed-use, commercial, residential, resort and amenity areas. The handover
to investors of the first phase of development, Madinat Al Arab, the planned urban
downtown at the heart of Dubai Waterfront, commenced in 2007.
Dubai-Singapore Parallel Case Study

Dubai and Singapore have many similarities. Both have massive ports serving a huge
hinterland, highly developed tourism sectors and are strong on business services
and finance. Also, there is little difference in the current GDP per capita (Singapore:
USD48,000, Dubai: USD40,000), although Dubai’s GDP growth of 11% in 2007 was
more than double, compared to Singapore’s GDP growth of 5%.
If we compare the real estate sectors of Singapore and Dubai, a typical downtown
1,000sq ft apartment will cost around USD1mln and can be rented for approximately
USD36,000 per annum, giving a rental yield of 3.6% in Singapore. Whereas in Dubai
the situation is completely reverse. A 1,000sq ft apartment in The Greens will cost
approximately USD270,000, and the same apartment will rent for USD22,000, giving
a rental yield of 8.1%. The activity in the real estate and construction sector is currently
very low in Singapore as property yields are too low that it is not economical to build
new real estate. However prices remain stubbornly high in the city-state.
Dubai may not experience as The reason for the huge difference in prices and rental yields is that Singapore is an
sharp a fall 30% in prices as older, more mature market than Dubai, with clear property laws and a highly developed
Singapore did in 2000 mortgage market. Singapore too went through its building booms and busts similar to
that of present Dubai, and yet property owners that stuck it through have come out on
top. The Singapore property market went through a boom that began in late1998, with
property selling prices increasing a cumulative 37% over two years. This boom was
followed by a very short period of stability, after which property prices dropped sharply.
During the downturn, property prices fell by about 30%from their peaks. Therefore
to understand where Dubai property will be in 10 years, Singapore is probably a
suitable model to follow. However Dubai may not experience as sharp a fall in prices
as Singapore did. We believe that Dubai real estate would experience a correction in
the prices of certain residential developments whereas the commercial segment will
continue to boom, offsetting the fall in residential prices to some extent. Thus Dubai’s
correction will softly slide the real estate prices into a phase of stability beyond 2010.
26
UAE Real Estate
Singapore Real Estate Boom and Bust Cycle (Base Year 1998)
145
Residential Property Price

140
135
130
Index
125
120
115
110
105
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: URA Singapore, KFH
Abu Dhabi
The wealthiest city in the world in terms of per capita income (2008F- USD70,000),
with both 10% of the world’s oil in the ground and an estimated USD136.2bln real
estate and infrastructure investments planned till 2010, Abu Dhabi till recently has
been quiet in comparison to the other Emirates within the UAE in terms of putting
themselves on the realty map. While the other Emirates (especially Dubai and Ras Al
Khaimah) were quick to announce mega projects, Abu
Dhabi has been waiting and watching. The emirate’s patience or alternately lack of
development has had two effects; the first has been a lack of supply which has driven
rentals in both the residential and commercial sector to prices above Dubai. Rentals for
prime office space crossed 150 /sq ft, much before Sheikh Zayed Road hit its current
levels. The second more positive effect has been that Abu Dhabi has watched what
Dubai has done and has decided to learn from its neighbour’s experience. The key
difference is better planning, more greenery and better infrastructure to accommodate
the upcoming developments’ needs.
In Abu Dhabi, a supply shortage is substantially clearer. We do not expect cumulative

supply to match cumulative demand until 5 years. In fact, we do not expect a significant
ramp up in deliveries until 2013. The wealth of Abu Dhabi, coupled with its tight housing
market, could lead to higher increase in prices in the UAE Capital as compared to
Dubai, over the coming years. This might lead people to move to Dubai, pushing up
prices there, especially in developments close to the border that are relatively cheap
because they are less central. As Dubai becomes more expensive, some residents
may shift to Sharjah and then Ajman, and so on. The result would be a consolidated
UAE realty market with economic segmentation. Abu Dhabi was always aiming for the
high end, and that’s exactly what it might get.
Abu Dhabi Expected Supply-Demand Abu Dhabi Exp. Deliveries & Household Growth
200 100
80
150
'000 Units
'000 Units
60
100
40
50
20
0 0
2007 2008F 2009F 2010F 2011F 2007 2008F 2009F 2010F 2011F
Abu Dhabi Expected Demand Abu Dhabi Expected Supply Abu Dhabi Exp. Deliveries Household Growth
Source: Government of UAE, KFH
27
UAE Real Estate
In Abu Dhabi, we do not Despite the announcement of numerous master-planned developments, the impact of
expect cumulative supply to a two year construction moratorium imposed between 1999 and 2001 is still evident in
match cumulative demand Abu Dhabi. Demand far exceeds supply in the UAE capital.
until 5 years
Cumulative Residential Supply
220,000
210,000
Number of Units
200,000
190,000
180,000
170,000
160,000
2007 2008F 2009F 2010F
Housing Rentals
One and two-bedroom apartments currently enjoy the highest demand, whilst
buildings with a reputation for effective property management and a good selection of
amenities have waiting lists for potential tenants. In addition, new buildings enjoy high
absorption levels, with some developers claiming that projects are 100% pre-let well
in advance of construction completion. Rental prices have steadily increased over the
past six years, with a price appreciation particularly marked at the upper end of the
pricing scale. The inflationary pressures resulting from rapid rental price increases
have prompted the Abu Dhabi Government to cap rent increases at 5% per annum.
We believe the 5% cap might have a perverse effect, leading property owners to ask
for higher rents that capture expectations of future appreciation today.
Aggregate Apartments Rents

60,000
50,000
40,000
USD
30,000
20,000
10,000
0
1-Bed 2-Bed 3-Bed 4-Bed
Mid Range High Range
Source: Colliers International, KFH Estimates
Housing Prices
A tight residential market and Price appreciation in the high income segment, notwithstanding the largest gap in the
a lower base helped housing current market, remains in the middle income segment. Given the extremely limited
prices in Abu Dhabi to grow facilities enjoyed by existing middle income properties, new buildings with a range of
fast, 61% in Q2 2008 from Q4 ancillary facilities are likely to perform particularly well. Overall benchmarks of building
2007 quality and facility provision now are increasing to meet occupier requirements. All
new apartments, targeting middle income occupiers and above, offer central air
conditioning and gas facilities. Almost 70% have underground car parking while
around 25% provide a health club and/or gym to tenants. Provision of these associated
facilities is now a minimum benchmark for new developments in Abu Dhabi. Economic
growth and a shortage of supply have provided the natural stimulus for development
activity in the Emirate. A tight residential market and a lower base helped housing
prices in Abu Dhabi to grow faster, 61% in Q2 2008 from Q4 2007.
28
UAE Real Estate
Abu Dhabi Residential Valuations
50 700
600
40
500
30 400
20 300
200
10
100
0 0
Q4 2006 Q4 2007 Q2 2008
Avg Rent (USD/Sq ft) pa Avg. Price (USD/Sq ft)
Office Market Performance

Existing office space supply Abu Dhabi’s office sector experienced development in spurts between 1978 and 2007.
in Abu Dhabi will increase by In recent years growth has not been as dramatic as witnessed in the early 1980s
an estimated 85% to 850,000 when the supply of office space doubled consecutively in 1982 and 1983. Since 2000
sqm of GFA
office supply has grown by 50% to a total of 460,000 sq m of Gross Floor Area (GFA).
With a spate of projects under construction and planned by 2011, existing office space
supply will increase by a further estimated 85% to 850,000 sq m of GFA.
Cumulative Office Supply

2,500,000
2,000,000
Sq ft (NLA)
1,500,000
1,000,000
500,000
0
2007 2008F 2009F 2010F
Unsatisfied demand has resulted in average rental increases of over 30% in all
office accommodation between 2005 and 2006. There have been further increases
of around 10% between 2006 and 2007, with the reduction in the average level of
increase attributable to the government imposed rental cap. Despite this, rents are
anticipated to continue to rise, until substantial supply enters the market from the end
of 2009 onwards.
The continuous flow of new organizations, keen to establish themselves in the

emirate, as well as the natural expansion of existing organizations, against the
backdrop of benign economic conditions, serve as key demand drivers for real estate.
These factors are further reinforced by the Abu Dhabi’s economic diversification
ambitions, and the development of planned industrial, financial and free trade zones.
According to statistics issued by the Abu Dhabi Chamber of Commerce & Industry
(ADCCI), there were approximately 60,000 licensed businesses in the city in 2006,
growing at an annual rate of 5%. Abu Dhabi’s dedicated office stock has the following
characteristics:
29
UAE Real Estate
• There are few purpose-built primary grade office buildings in the city, and the bulk
of them are owned by government or semi-government entities
• Occupancy rates in purpose-built office buildings are typically around 98%, with
the balance of space being subject to the natural vacancy rate which is associated
with lease transfers or new tenant fit-outs
• The quality of the stock is low with the majority of office buildings in the city of
secondary or tertiary grade. Nevertheless, the finishes of these buildings are
generally fair and they offer functional office space, albeit lacking in modern
communications systems, services and floor plate design efficiency
• Virtually all buildings suffer from a lack of dedicated parking facilities
Abu Dhabi Office Market Valuations

100 1200
80 1000
800
60
600
40
400
20 200
0 0
Q4 2006 Q4 2007 Q2 2008
Avg Rent (USD/Sq ft) pa Avg. Price (USD/Sq ft)
Source: Colliers International, KFH Estimates
Retail Market Performance

In 2000 there were no destination retail venues in Abu Dhabi. During the intervening
period, there has been a notable shift towards the provision of international standard
shopping malls, doubling-up as visitor destinations. The Marina Mall and the Abu
Dhabi Mall both opened during 2001, contributing a total Gross Leasable Area (GLA)
of 139,000 sq m, followed by a further 35,000 sq m at the Meena Retail Park in 2002.
In 2006, Phase II of the Marina Mall contributed an additional 40,000 sq m of GLA to
the city’s available retail mall stock. The opening of Al Raha Mall and Al Wahda Mall in
May and July 2007 respectively increased the existing supply by a total of 172,500 sq
m. Early indications suggest that these malls are performing in line with the operator’s
expectations.
Upcoming Retail Area by Developments

Al Raha
Beach, 36.50 Al Yas
% Island, 25%
Others, 5.70%
Between the
Bridges, 3.80% Al Reem
Island, 15%
Breakwater,
4.70% Khalidiya, 5.6 Zayed Sports
0% City, 8.40%
30
UAE Real Estate
Shopping mall GLA in Abu Shopping mall Gross Leasable Area (GLA) in Abu Dhabi set to increase from
Dhabi set to increase from 810,000sq m at present to 1.4mln sq m by 2010.The new malls have introduced the
810,000sq m in 2008 to 1.4mln concept of convenience shopping in a climate controlled environment with the added
sq m by 2010 benefit of dedicated parking, crèche, and adequate restroom facilities – marking a shift
away from the city’s traditional ‘high-street’ retailing orientation. This continuing trend
towards one-stop shopping environments, in tandem with increases in disposable
income over the last decade, has been reflected in the number of recently completed
and forthcoming retail developments. The year 2010 is likely to represent a watershed
for retail market performance in the city, with Sorouh Real Estate set to open the Al
Reem Mall with 130,000sq m of GLA and the Al Yas development adding a further
300,000sq m of leasable area. In 2010, Abu Dhabi will have 0.87sq m of GLA per
capita. Retail Services project that in order to support this volume of retail mall stock,
an approximate annual retail expenditure of USD 4,900 per capita will be required.
Hospitality Market Performance

Historically, Abu Dhabi has been overshadowed by Dubai as a leisure tourist
destination. Demand for hotel accommodation in the city is driven predominantly by
business tourism, which accounts for 75% of overall hospitality market demand. In
2006 the Emirate witnessed average hotel room occupancy rates of 78.6%, while
serviced apartments achieved approximately 80%. Average Room Rates (ARR) rose
by approximately 40% compared to the previous year, to USD 167 and USD 235 for
4* & 5* rooms respectively. Early industry reports suggest that Q2 2008 occupancy
rates have been maintained at 78.5%.
ADTA is seeking to increase The Abu Dhabi Tourism Authority (ADTA) is seeking to increase the market share
the market share enjoyed by enjoyed by the leisure tourist segment to 40% by 2015. It plans to do so by developing
the leisure tourist segment to destination attractions for cultural, sporting, and Meetings, Incentives, Conferences
40% by 2015 and Exhibitions (MICE) tourism segments. Such initiatives include the provision of
dedicated hotels, resorts, art & culture venues, shopping malls and other facilities
which aim to capitalise on Abu Dhabi’s endowment of natural islands, long stretches
of beach, and its position as the UAE’s sociopolitical and cultural core.
The recent announcement of an agreement between Mubadala, a government-owned

investment authority, and Formula 1 founder Bernie Ecclestone that Abu Dhabi will
play host to the prestigious racing circuit from 2010, has been hailed as the first major
step in the city’s efforts towards becoming a more widely recognised leisure tourism
destination. This has been complemented by the decision of the world-famous Louvre
and Guggenheim museums to establish Middle East counterparts on Abu Dhabi’s
Saadiyat Island, both scheduled for completion in 2012. In line with the government’s
objective of stimulating tourism, the ADTA plans to license the construction of 17,000
new hotel rooms in the Emirate by 2015, of which 45% are in the 5* category.
Cumulative Hospitality Supply

220,000
210,000
Number of Units
200,000
190,000
180,000
170,000
160,000
2007 2008F 2009F 2010F
31
UAE Real Estate
There are currently 9,500 rooms (including all hotel categories and serviced
apartments) in the Emirate, with Abu Dhabi city accounting for approximately 8,000
rooms, with Al Ain, Al Dhafrah, Mafraq, Ruwais and Liwa providing the remainder.
Approximately 8,500 hotel rooms are currently under construction in the city. Increases
in the numbers of visitors to the Emirate and an expansion in the destination reach of
Abu Dhabi based Etihad Airways have supported strong occupancy rates and ARR
growth during the past 18 months. We expect this growth to be sustainable as Abu
Dhabi carves out a position for itself as a business, sporting and cultural tourism
destination.
Future Hospitality Supply-Market Share

Serviced
Apartments, 2
6.80% 5*, 45%
3*, 10.70%
4*, 17.50%
Major Upcoming and Existing Real Estate Developments in Abu Dhabi
• Al Raha Beach development - In Feb, 2008 Aldar Properties entered an

USD0.4bln joint venture with Investment Holdings, a local company, to develop
the Al Khubeira precinct at its USD18.3bln Al Raha Beach development. The
joint venture will develop an area of approximately 50,000 sq m. The Al Khubeira
development will comprise residential towers and waterfront villas on reclaimed
land. The project, occupying an area of 6.8mn sq m with a total built-up area of
12mn sq m, is due for completion in phases between 2009 and 2017.
• Abraj Towers (Phase I) - Situated adjacent to Al Raha Gardens and within the
overall Al Raha Beach development, the first phase was completed in Dec 2007.
The completed phase comprises 10 buildings with 198 residential units and in
excess of 4,800 sq m of office and retail space. The whole development including
both phases was sold in Jan 2008 to a newly created Joint Venture Company
between Etihad Airways and ALDAR. The Joint Venture Company has leased the
whole development to Etihad Airways for 20 years
• Al Raha Gardens - Al Raha Gardens is situated opposite Al Raha Beach, on the

main highway leading from Abu Dhabi to Dubai. The first phase comprising of
280 villas was completed in December 2007. Phase II consists of 470 villas and
Phase III consists of 638 villas with expected completion in December 2008 and
August 2009 respectively. The Phase IV consists of a new town centre and the
master plan for the development was approved in March 2007.
• Shams Abu Dhabi - This project will be developed on Reem Island in Abu Dhabi
by Sorouh Real Estate and occupy approximately 25% of the island. It will occupy
1.32mln sq m of which, 90% will be dedicated to residential buildings. When
completed in 2011 it will be home to approximately 70,000 people. Sorouh’s Sky
32
UAE Real Estate
Tower is destined to be the highest skyscraper in Abu Dhabi and Sorouh is also
responsible for the USD243mln Golf Gardens luxury residential development
adjoining Abu Dhabi Golf Club. In addition Surouh has launched Saraya Abu
Dhabi, a new USD1.1bln mixed-use development in Abu Dhabi City, next to the
Corniche Hospital.
• The Quay - The Quay planned at Abu Dhabi Tourist Club will be a mixed-use
development with leisure, residential and commercial elements, featuring a five-
star hotel, Abu Dhabi’s first aquarium, a gated residential community, quayside
office space and a 60-berth marina.
• Emerald Gateway project - Abu Dhabi Municipality announced its plan to

develop a luxury residential and commercial real estate project at a cost of
USD2.3bln in partnership with private companies. Located along the Coast Road
halfway between downtown Abu Dhabi and Abu Dhabi International Airport, the
development would include 88 towers on both sides of a 3.5 km segment of the
arterial highway.
Ras Al Khaimah
Ras Al Khaimah’s economy The economy of Ras Al Khaimah is estimated to grow at a rate of 15% to 18% in
is estimated to grow at a rate 2008, thanks to the rapid advances the emirate has made in real estate and tourism
of 15% to 18% in 2008, led sectors. Ras Al Khaimah’s portfolio of real estate projects follows an impressive vision
by real estate and tourism
of imagination and innovation, combined with environmental aesthetics. For decades,
sectors
Ras Al Khaimah’s natural diversity and stunning landscape has made it a favorite
getaway destination for many of its neighbors. Hotels in Ras Al Khaimah achieved a
phenomenal 93% occupancy level during 2007. Ras Al Khaimah therefore only needs
to address the rising demand for residential properties and high-end tourism resorts
while still balancing its unique cultural and ecological assets.
A visionary Ras Al-Khaimah government has made a commitment to its growing tourism
market, investing funds into building a superior and greener Emirate. Luxury ‘palm-like’
man made islands, five star hotels, world-class marinas and luxury residential property
are all set to put Ras Al Khaimah on the map. Property in Ras Al-Khaimah benefits
from its beautiful natural surroundings, including the longest stretch of coastline in the
Emirates, sparkling turquoise waters and picturesque mountains. And it’s all only 45
minutes drive from Dubai International Airport. With land and property space in Dubai
in very short supply, its neighbour is reaping the advantage.
Taking a leaf out of Dubai’s book, Ras Al-Khaimah has developed a flourishing free
trade zone, several business parks and has numerous world class tourist attractions
in the pipeline. No doubt benefiting from the experience Dubai, Ras Al-Khaimah has
taken a very practical approach to property investment. For example, the Emirate
already has procedures in place to sell Freehold title ownership. With bold ambitions
for tourism and development, this steady
emerging Emirate is the ideal investment opportunity. As well as attracting some

USD28bln of domestic and foreign investment since 2000, Ras Al-Khaimah real
estate has a long list of attractive investment qualities including:
• Tax free benefit
• 100% freehold
• Stable rental market
• Foreign ownership
• Year-round rental, offering fantastic buy-to-let opportunities
33
UAE Real Estate
• Natural beauty – stunning beaches and mountain backdrop

• Growing tourist destination -the new holiday destination of the Middle East
The government of Ras al Khaimah has created two specialized companies to execute
and oversee the emirate’s real estate development, RAK Properties’ and Rakeen.
With a sound capital of USD544mln, the public joint stock company RAK Properties’
main aim is to attract foreign investors of repute to launch state-of-the-art projects in
the emirate. To date, it has been highly successful in this goal, having reported a net
profit of USD135mln for 2007, only its second financial year since inception. Moreover
the company recently expanded its activities to the Abu Dhabi and Dubai markets
and is considering future overseas investment opportunities in Georgia, Tanzania,
Morocco, Egypt, and India.
• Julfar Towers - Julfar Towers is a residential and commercial freehold development

that will be built 4m (2.5 miles) north of Ras Al Khaimah’s city center. The
USD109mln project will comprise of two 40-storey towers, one residential tower
and one office tower, and is the first project by the Ras Al Khaimah’s government
established development company, RAK Properties. Julfar Towers will have views
of the creek, mangroves and mountains, along with being minutes away from the
Manar Mall, beaches and golf club. The completion date of the project is end of
2008.
• Al Hamra Village - Located to the southern end of Ras Al Khaimah City, the
5mln sq m expanse is a picturesque sight that is set around salt water lagoons, a
championship golf course and its own marina. The residential project is dubbed
as an excellent real estate development project that allows freehold property
owners a chance to redefine the meaning of luxury living.
• Mina Al Arab - On a much larger scale is Mina Al Arab (Port of Arabia), a landmark
coastal development, spreading over 300 mln sq m and valued at USD2.7 bln.
50% of the area will be used for construction and parking—including numerous
resort hotels, 5,042 residential units, and 593 villas and townhouses—and the
rest will be preserved to retain its natural beauty and ecology. The project’s first
phase is on schedule to be completed by 2010.
• Al Marjan Islands - Al Marjan Island is an offshore island tourism development

being built in the south-west of Ras Al Khaimah. The USD 1.8 bln (USD2.2 bln)
project will be located close to the Al Hamra Fort hotel and Al Hamra Village,
approximately 27 kilometers (17 miles) from the city’s center. Al Marjan Islands
will comprise of five man-made coral-shaped islands, covering over 2.7mln sq m
and extend approximately 2 km (1.24 miles) into the Arabian Gulf. It will contain
10 major hotel sites, 50 large villa sites, a marina and marina village, and a water
theme park.
• The Cove - The Cove is a beachfront property being built as the second freehold
development project in the city of Ras Al Khaimah. The USD60.5mln beach resort
will cover 50 acres and contain 134 Nubian style furnished chalets and a five-
star beach hotel. It is located to the south of the city’s center along Ettihad Road,
approximately a 40 minute drive from the Dubai International Airport. The unique
investment opportunity of The Cove is meant for individuals who would like to
have a holiday home, which they visit for 4 weeks of the year, and the remaining
11 months would have a guaranteed 7% net return per annum. The owner also
has the facility to sell the property back to the developer at the market value.
34
UAE Real Estate
• Gateway City - The Gateway City will consist of five phases, extending over 400
mln square feet. Phase 1 will consist of an integrated city to service, support and
supplement the capital city of Ras Al Khaimah. The estimated time for completion
has been set at 2012. The development will herald a new era in the development
of the emirate of Ras Al Khaimah. It is being planned with the utmost credence
to deeply entrenched social, cultural and environmental values, whilst relying
heavily on the most stringent and tested technological advances.
• RAK Financial City - RAK Financial City is being developed by the RAK Investment
Authority, RAKIA. The City comprises of 12 ultra modern towers and will be the
center of RAK business. RAK Financial City will offer business, financial, legal,
logistic and insurance services in a free-zone environment.
Fujairah
Influx of expatriates has The influx of expatriates in Fujairah, which reflects its rapid economic development,
created strong demand for has created strong demand for luxury flats, villas and office space in the last three
luxury flats, villas and office years. This has prompted investors and landlords to build large number of apartments
space in the last three years and charge rents which the average Fujairah resident cannot afford. The emirate’s
remarkable economic development has resulted in hectic activity in the local real
estate market during the last few months, with demand for flats increasing by more
than 25% over the number of available flats. Private investment has been pouring
into the construction sector to cope with the spurt in demand since 1995. This has
sometimes matched the growth, but on other occasions fallen short of demand. The
continuous increase in demand for low-cost housing and office space in Fujairah
since 1995 has resulted in a construction boom, with building companies cashing in
on the situation.
Residential Rents in Fujairah

14,000
12,000
10,000
USD p.a.
8,000
6,000
4,000
2,000
0
1-Bedroom 2-Bedroom 3-Bedroom
1998 2008
Source: Real Estate Agents, KFH
Major Upcoming and Existing Developments in Fujairah
• Fujairah Tower - The 45-storey building, the highest such building in Fujairah
and on the East Coast, has become Fujairah’s new landmark which can be seen
miles away from Fujairah city. Construction of Fujairah Tower started in early 1999
and was completed in 2007. The multi-million tower is located at the Fujairah city
centre, close to Al Diar Siji Hotel. It has succeeded in attracting a large number of
investors and businessmen flocking to the emirate to set up economic projects.
35
UAE Real Estate
• Mina Al Fajer Resort - The emirate of Fujairah is developing USD160mln

mountain-sea resort property, Mina Al Fajer Resort, which will be completed
before the end of 2009 giving Fujairah the first of what is expected to be a growing
number of world-class, exclusive real estate projects.
• Al Jabar Tower - Fujairah’s efforts into the freehold market have been limited
to the 43-storey 170-meter Al Jabar Tower, which will contain 270 residential
apartments, commercial shops and showrooms and is being developed by Al
Jabel Contracting.
Ajman
To date, developers in Ajman is the smallest among the rest of the emirates with only 260 sq km of land but
Ajman have announced a long coastal line gives this desert area a unique look of its own. The government of
projects worth approximately UAE in 2004 made this land area a major real estate investment front by declaring it
USD21.78bln freehold. Ajman real estate has thus been thriving and witnessing some of the major
development and construction boom. Situated in the north of Dubai and the second
emirate to be pronounced as freehold area, Ajman real estate has become one of the
major revenue generating and profit disbursing area in the UAE.
Total Investments in Real Estate and Land Prices in Ajman

2,500 120
2,000 100
80
USD/Sq.ft
USD mln
.
1,500
60
1,000
40
500 20
0 0
2003 2008
Investment in Real Estate Land Prices
Source: Ajman Investment and Development Authority
Till date, developers in Ajman have announced projects with total investments of
approximately USD21.78bln as against USD953.05mln in 2005, USD118.81mln in
2003. These projects are expected to add at least 65,000 units and are expected to
become available between 2009 and 2012. Meanwhile land prices have sky rocketed
from just USD11/sq ft in 2003 to as high as USD100/sq ft in 2008.
Ajman was the only emirate to introduce freehold property after Dubai as early as
in 2002. Recently, the Government of Ajman opened a special department - Ajman
Development and Investment Authority – to regulate real estate development activities
in the emirate.
The department will study and prepare freehold laws, escrow account law and strata
regulations similar to Dubai’s. It will also deal with disputes related to finance and
contractual obligations. Ajman is working hard to improve and enhance its infrastructure
facilities and has allocated funds in excess of USD0.3bln. In the year 2007, the
government of Ajman assigned USD136.2mln towards infrastructure. In Ajman, prices
average USD60/sq ft for studios and USD48/sq ft for 1 bedroom apartments. Demand
for smaller housing units like studios and 1 bedroom apartments is surging in Ajman,
mainly because of the influx of expatriates from emirates of Dubai and Sharjah.
36
UAE Real Estate
Comparison between Ajman and Dubai Property Prices

350
300
250
USD/sq ft
200
150
100
50
0
Studio 1-Bed 2-Bed
Dubai Ajman
Source: Real Estate Agencies, KFH Estimates
Approximately 200 freehold Real estate in Ajman is visualizing its progress in two different approaches. Ajman
residential towers are under real estate residency projects and Ajman real estate business development projects
construction in Ajman which include many on going and many future mid to mega level projects. Real estate
companies are now investing heavily in the property ownership in Ajman because the
market of Ajman is comparatively immature with respect to Dubai but with equal if not
greater possibilities of becoming major business market of the world. The emirate is
striving to make a name for itself in real estate and tourism, spearheaded by Ajman
Investment and Development Authority (AIDA) in conjunction with its development
arm Aqaar. The intention is to transform the emirate into a popular destination for both
tourism and business. Approximately 200 freehold residential towers are either under
construction or have been completed since the city’s freehold regulations opened up
the possibility of 100% ownership rights.
In October 2007, it was reported that the average price of building materials had
gone up 20% from the previous year and that outsourced labour costs had gone
up 30%. However, the emirate’s ability to use local contacts and knowledge to get
work done, as well as price caps on some materials, has helped to restrain these
inflationary forces. In addition, cheaper and more liberal work permits in the emirate
mean fewer problems with labour as has been seen throughout the rest of the UAE.
Despite Ajman’s advantages, challenges remain. One of the major concerns for
developers is infrastructure, particularly roads, electricity and other public services to
keep construction projects running on time.
Major Upcoming and Existing Developments in Ajman
• Al Naeymiyah Towers - Al Naeymiyah towers in Ajman, are100% ownership

apartments, available in the emirate of Ajman. The towers are in the area of al
Naeymiyah, hence the name. Phase 1, consists of seven buildings and phase 2,
and consists of eight buildings, to total 15 buildings with 16 floors each.
• Al Khor Towers - Al Khor Towers, also referred to as Creek Towers, are freehold
residential buildings being built close to the Ajman Khor (Creek). Its towers are
identical to the towers of Al Naeymiyah Towers. Al Khor Towers will contain nine
16-storey apartment buildings, with only 4 apartments per floor. Al Khor Towers
will be easily seen across Ajman’s skyline and will be built in close vicinity to the
Etisalat building and Ajman City Center.
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UAE Real Estate
• Green City - It is the first of its kind project in Ajman offering 654 villas spread
over an area of 1.42mln sq ft. conveniently located villas offer vast open spaces,
elegantly designed homes and landscaped greenery all around. With retail
areas nearby, Green City is not just residential development but a complete
community.
• Uptown Ajman - The development offers 1504 freehold villas spread over 3.5mln
sq ft of area. Inspired by French architecture, Uptown Ajman offers a choice of six
different types of villas. With dedicated green areas and recreation facilities, the
development boasts of convenient location on the Emirates Road
• Ajman One - The USD0.9bln project will cover 72,000 sq m. Phase 1, which
started in 2007 will be completed in three years time, and will have 12 freehold
residential towers forming the core of the development. The construction of phase
2, which is valued at Dhs1.7bln, is underway and will consist of three office towers,
a convention centre, and a 4-star business hotel with serviced apartments.
Sharjah
Although Sharjah tried to follow Dubai’s lead in property development, the Emirate
has not been able to successfully establish a freehold property law. As a result,
properties in Sharjah are still leasehold. Investors who are being priced out of Dubai
are now considering Sharjah as an alternative investment opportunity. With prices still
far behind Dubai and rental demand growing, Sharjah is experiencing the front end
cycle of a property boom. Moreover lower rents and property prices in Sharjah draw
people from other emirates, even if it means a daily commute to Dubai or sometimes
even Abu Dhabi.
Major Upcoming and Existing Developments in Sharjah
• Nujoom Islands - Nujoom Islands, also referred to as Stars Islands, is the largest
commercial, residential and tourism development project in the city of Sharjah.
The USD4.9bln project will be built in three stages, over a period of 5 years, near
the village of Hamriya. 60% of Nujoom Islands will be landscaped with beaches,
gardens, parks, and roads, while the remaining 40% will contain structures. The
project is being developed by Saudi-based real estate company Al Hanoo Holding
Company. Comprising residential, entertainment, retail and leisure developments
on ten islands, all to be constructed in several phases, the project includes an
International Business and Financial Centre (IBFC).
• Sharjah Marina - Another project that was announced at the end of December
2007 is the Sharjah Marina, a mixed development project located near Dubai’s
Mamzar Park area to be developed by Burooj Properties at an estimated cost of
USD4.0bln. This will be 1 mln sq ft of development which will consist of a 2 km
canal, 2.5 km beachfront, low-rise buildings, commercial, residential, retail and
touristic outlets. The project is expected to be completed in 2013.
• Sharjah Jewe l - Developer JMS has announced plans to unveil a luxury hotel
and commercial tower, called the ‘Sharjah Jewel’, worth USD0.5bln, at the Al
Mamzar Lagoon in Sharjah. The tower, which is ideally located at the pristine
beaches of Al Mamzar Lagoon, will heighten the sense of luxury for anybody
working or residing there, and afford good accessibility to Dubai and Sharjah.
The unique ‘hanging’ form of the Sharjah jewel will continue to rise dramatically at
ground floor plus 55 floors.
38
UAE Real Estate
Umm al-Qaiwain
Property ownership in Umm According the existing real estate law regulating land and property ownership in Umm
Al Quwain is limited to UAE Al Quwain, property ownership in the emirate is limited to UAE and GCC nationals or
and GCC nationals, however corporate bodies owned by them. However it allows foreigners and expatriates to buy
foreigners can buy land
land within Umm Al Quwain but only in pre-designated investment zones. They can
also enjoy the benefits of ownership of their surface property on the basis of a 99-year
old lease period.
Having identified the real estate, tourism and trade industries as potential growth
sectors, the planners of Umm Al Quwain have executed a rather ambitious expansion
programme, aside from investing heavily in infrastructure development. It aims to
integrate these components seamlessly to provide a unique development to bolster
the local economy and generate employment for thousands. Developers investing
in real estate projects in Umm Al Quwain will now enjoy massive tax holidays
and improved amenities like good roads, water and electricity connections, ready
availability and hassle-free transportation of construction materials. In addition, Umm
Al Quwain is planning to develop industrial and business areas to complement its
booming residential market in the hope that the miniscule emirate would attract not
only would-be residents but also business speculators.
The major property investors in Umm Al Quwain include South Asians, primarily
Indians and Pakistanis. Iranians and Russians also figure among the businessmen
flocking to the emirate.
Major Upcoming and Existing Developments in Umm al-Qaiwain
• Al Salaam City/ Madinat Al Salam - One of most extensive realty projects that
has been unveiled in Umm Al Quwain is the Al Salaam City, referred to in Arabic
as Madinat Al Salam; it is an integrated residential and commercial development
within the city of Umm Al Quwain. The estimated cost of this city is approximately
USD8.3bln. Al Salam City is to be constructed in three different phases over
a period of 15 years and is composed mostly of residential districts, high-rise
towers, parks, playgrounds and entertainment centres.
• Umm Al Quwain Marina - The positive happenings in the emirate’s real estate
market have also lured big players like Emaar Properties; among the latest
offerings from the Dubai-based real estate giant is the Umm Al Quwain Marina,
a community of 8000 stylish homes, designer hotels, sports & yacht clubs and
retail centres, along the ocean, lakes and canals. The USD3.3bln worth, Umm
Al Quwain Marina is spread over 2000 acres of land and features 450 acres of
navigable water area.
Although currently foreigners and expatriates are debarred from possessing any
property in their names, there is widespread belief among real estate consultants that
this could soon change, paving the way for freehold property ownership within Umm
Al Quwain.
39
UAE Real Estate
Conclusion
Among the GCC countries, UAE stands out as the leading real estate market in the
region with USD500bn worth of announced projects expected to be delivered over
the next few years. With the 23rd place among the world’s most competitive countries
(Global Competitive Report 2007-08 issued by the World Economic Forum) coupled
with the failure of the U.S. sub-prime crisis to dent the UAE economy, the country is
set to attract new international investors wishing to relocate to this part of the region
in the years to come.
UAE’s realty valuations have The real estate market in the UAE has been tremendously successful for investors
enjoyed 300% cumulative over the last 5 years. The UAE realty valuations have had 300% cumulative average
average appreciation in just appreciation in just 5 years. Looking at where these valuations have come from, with
5 years
such high rates of cumulative average appreciation, it would be impossible not to
worry about current valuations especially as there is no established resale market to
provide a proper benchmark for valuations. However, our view is that the significant
regulatory and structural changes throughout the emirates offer more than sufficient
justification for today’s real estate valuations, considering the extremely low base
valuations in the earlier part of the decade.
UAE realty sector will Although the real estate supply in the UAE is expected to grow in 2008-09, projections
continue to flourish led by the of the sector must essentially be based on economic growth realities. The performance
relatively unexploited markets of the real estate sector is a reflection of the overall economy. With a GDP forecast
of Abu Dhabi, Ras Al Khaimah between 7-8% for the next 5 years and the emergence of the UAE as a hub for
and Ajman
investments in infrastructure building, demand for residential, commercial, hospitality
and retail real estate will continue to increase in the budding emirates of Abu Dhabi,
Ras Al Khaimah and Ajman. Abu Dhabi realty sector will continue to reap benefits
of high prices due to the huge demand and supply gap which is expected to remain
intact till 2013. Moreover improvements in legislation as well as further deepening
of the mortgage market will also act as catalysts for growth. Furthermore the delays
and cancellations in the delivery of projects due to supply side bottlenecks such as
shortage of raw materials and rising cost of labour will ensure a phased out supply
in the market thus prohibiting a huge correction in the short to medium term (2-5
years) Although we forecast a correction in property prices in Dubai by 2010 based
on our demand-supply forecast, the decline would only be limited to certain sectors of
residential developments such as high-rise apartments. Prices of commercial market
real estate, villas and low-rise apartments will continue to be underserved as they are
expected to continue being in demand post-2010 given limited supply pipeline, thus
balancing the decline in other sub-sectors. Therefore we expect to see Dubai real
estate softly landing into a phase of stability rather than a crash or a severe correction
in 2010, while the overall UAE realty sector will continue to flourish led by the relatively
unexploited markets of Abu Dhabi, Ras Al Khaimah and Ajman.
40
UAE Real Estate
Chart Analysis
Real Estate Sector to GDP Dubai Residential Market Valuation
9 50 600
40 500
8 400
30
300
%
20
200
7
10
100
0 0
Q4 2006 Q4 2007 Q2 2008
6
2004 2005 2006 2007 2008F Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft)
Dubai Office Market Valuation Abu Dhabi Residential Market Valuation
100 1,400 50 700
1,200 600
80 40
1,000 500
60 30 400
800
600 20 300
40
400 200
20 10
200 100
0 0 0 0
Q4 2006 Q4 2007 Q2 2008 Q4 2006 Q4 2007 Q2 2008
Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft) Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft)
Abu Dhabi Office Market Valuation Total Investments in Real Estate and Land Prices in Ajman
90 1,200 2,500 120
80
1,000 100
70 2,000
60 800 80
USD/Sq.ft.
USD mln
50 1,500
600 60
40
30 400 1,000
40
20
200 500
10 20
0 0
0 0
Q4 2006 Q4 2007 Q2 2008 2003 2008
Avg Rent (USD/Sq ft) p.a. Avg. Price (USD/Sq ft) Investment in Real Estate Land Prices
Comparison between Ajman and Dubai Property Prices Property Rights Index
400 Bahrain
300 Kuwait
USD/sq ft
Oman
200
Qatar
100 Saudi Arabia
UAE
0
Studio 1-Bed 2-Bed
Dubai Ajman 0 10 20 30 40 50 60 70
Source: UAE Central Bank, Colliers International, KFH
41
UAE Real Estate
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What is the overall outlook for the UAE real estate sector?

What is the overall outlook for the UAE real estate sector?

What factors are driving demand for real estate in the UAE?

What factors are driving demand for real estate in the UAE?

SECTOR

12 September 2008 UAE Real Estate

We maintain a positive outlook for

Dubai real estate would experience a

The UAE’s real estate sector will

KFH Research Ltd

UAE Real Estate Outlook 3

Demand Drivers for Real Estate 4

Challenges facing the Real Estate Sector 13

UAE Real Estate vs.GCC Real Estate 14

Tursina Yaacob Mohd Arsad Thinoon

Waina Leong Imran Ibrahim

Noor Ashikin Ismail Tabassum Khwaja

Kuhan Balasegaram Meeta Anand

Darshini M. Nathan Mashkurah Abdul Latif

Mohd Izhar Allaudin

• Solid macroeconomic foundation with GDP growth projection of 7.8% in 2008, on

Growth in real estate transaction volumes in the GCC in 2007

REFER TO DISCLAIMER & DISCLOSURE AT THE END OF THIS PUBLICATION

Demand Drivers for Real Estate

UAE’s Real GDP Growth Trend

UAE’s Real Estate Sector Contribution to GDP

2) Public expenditure and huge fiscal surplus

Fiscal Position Trend (2003-2008F)

UAE’s Repurchase Rate Trend (12th Dec 07-1st May 08)

Additionally, we feel the necessary institutions (monetary policy committees or

4) Record high inflation rates

Source: UAE Central Bank, KFH Estimates

UAE Real Estate Projections

6) Rising per capita income levels

UAE Per Capita Income Trend

Sq ft Residential Prices '000 USD

Source: GlobalPropertyGuide.com, IMF, KFH

Key UAE Mortgage Lenders and Terms of Loans

8) Availability of Islamic Financing

9) Legal changes to help build investor confidence

Property Rights Index

Supply Side Bottlenecks / Challenges

SWOT Analysis of UAE Real Estate Sector

Solid Macro-Economic Rising cost of cement and

Attractive Rentals Ambiguities in Legal Structure

Source: KFH Research

UAE vs. Other GCC Countries

Comparison of Rentals and Yields in the GCC (Sept 08)

Dubai land sales 2008

30% rke 20%

Early Stage Strong Growth Slowing Recession

Source: GRP Real Estate, KFH

Buyers of Property in Dubai

Types of Property and Classification of Buyers

Expected Investor Involvement in Buying Real Estate Assets in Dubai

Housing Market Performance

Source: Government of UAE, KFH

Capital Growth Appreciation (Launch to Current Price)

4/5 Hotel Room Supply and Annual Growth Rate