Welcome to The Address, the land that downtime forgot

Housing in the shadow of the world's tallest building is pushing up the costs for the whole of Dubai. But those sales results are hiding a less rosy outlook for the emirate's market. Wayne Arnold reports. DUBAI // Property has always been about location. In Dubai, residential property prices now seem to be driven largely by The Address. Serviced residences at The Address Downtown Burj Dubai, the swank new hotel in the shadow of the world's tallest building, ranked among the most expensive property sales in the second quarter of this year. Despite a global recession sparked by a dramatic fall in real estate abroad and in the UAE, an Indian investor still managed to sell his one-bedroom, furnished apartment on the 42nd floor of The Address to a buyer from Sudan for Dh2 million (US$545,000), pocketing an 18 per cent profit. Sales of newly completed luxury properties such as his helped lift residential prices overall in Dubai 4 per cent in the second quarter of the year, compared with the first quarter, according to data from Reidin.com. The website has compiled an online database of every property transaction registered with the Dubai Land Department since 1973. Compared with the 15 per cent slide in property prices in the fourth quarter of last year and the 9 per cent decline in the first three months of this year, the June quarter increase may reinforce hopes that the market has levelled out and a recovery is imminent. But the increase in average prices, to Dh869 per square foot in the second quarter, masks what analysts say is a weakening outlook for the nation's property and construction sector as credit remains tight and the economic forecast cloudy. An analysis by The National of the more than 28,000 transactions registered in the past two years reveals that sales numbers continued to slide. After rising to a peak of 1,196 in April last year, monthly sales volumes slumped to 338 in June this year, the lowest figure since October 2006. Prices in June were 6 per cent lower than the year before. "People are becoming a bit more nervous and saying, 'Yes, prices have fallen a lot, but we still want to wait and see if they're going to fall even more before we buy'," says Craig Plumb, the head of research at Jones Lang LaSalle in Dubai. "And there are sellers who say, 'At these reduced prices I'm simply going to rent my apartment out rather than sell it'." The global economy has cast a pall over the nation's property market. Dropping global trade threatens to retard recovery despite a rise in oil prices that is refilling government coffers. Even when recovery does come, economists say it is likely to be slow and painful as economies in the UAE and elsewhere sweep aside the wreckage of the previous bubble in lending and property investment. "We have a credit boom that is still unwinding and it takes time to clear those excesses," says Simon Williams, the chief economist at HSBC in Dubai. "When it does, the region flies but until that's worked through it's going to be fairly undramatic growth." And so the property market casts its own shadow over the nation's economy. Declining prices are dimming the outlook for banks, crimping the credit needed to resuscitate growth. Banks have already reported rising levels of borrower defaults and delinquent loans eating into their profitability. But analysts warn that banks remain reluctant to declare delinquent borrowers in default and are offering them alternatives to reduce the number of loans they classify as non-performing (NPLs). "We're far from the end of this NPL problem," says Raja Kiwan, an analyst in Dubai at PFC Energy. "The worst is yet to come." Analysts warn not to expect much change in the third quarter either, as the UAE settles into the lull of summer and into Ramadan. "It's not going to be until September or October that we'll get any indication of whether we've turned the corner," says Mr Plumb. Amid the stand-off between buyers and sellers, those deals being concluded are largely completed properties of obvious quality in coveted locations. The imminent completion of Burj Dubai and the projects surrounding it in Business Bay, therefore, skewed the average price of the market upward, even though prices for individual properties continued to fall. Before the crisis hit, sales in Business Bay accounted for less than 4 per cent of all Dubai property transactions. In June, they represented 17 per cent of the market. Without big-ticket sales in Business Bay, average prices in Dubai would still have risen but only by 3 per cent, largely because of a tick upward in April. Buyers drawn by the allure of living in or around the world's loftiest tower have kept transactions in Business Bay relatively buoyant amid the wider slump. After almost a year of delays, workers put the last glass panel of the Burj Dubai in place last month. Emaar says the tower will open for business before the end of the year, becoming the centrepiece in a 202-hectare development already touted as the new heart of Dubai. Agents have said that many investors and tenants are taking advantage of lower prices in Dubai to trade up to higher-quality developments, such as The Address and its neighbour in Downturn Burj Dubai, Old Town, the luxury residences built with traditional Arabian architectural styles. Even as sales volumes sank elsewhere in Dubai, Business Bay saw a record 80 transactions in March. They have since declined but Business Bay still saw 58 sales in June, when an Indian investor paid the princely rate of Dh2,983 per sq ft for a two-bedroom residence at The Address - a Dh5.5m transaction. Demand like that supports optimists who say Dubai's status as a centre for trade, travel and finance gives it an allure that defies property cycles; akin to top global cities such as New York, London or Paris. Property prices over the longer term have managed to defy the global recession. The average residential price in Dubai is still higher than a year ago. Prices in the second quarter climbed 3 per cent after posting an 8 per cent year-on-year gain in the first quarter. "No other hub can compete with Dubai," says Mr Kiwan. So when economic growth in the region recovers, "Dubai will be in a better position to pick it up", he says. But the third quarter appears almost certain to be a tough one for Dubai property, if for no other reason than it will mark a year since the peak of the market. On a year-on-year basis, prices are virtually sure to post a dramatic decline, even if they rise from present levels. The market is also losing key support from its biggest buyers. Purchases by Indians, Pakistanis and Britons are still declining. As a result, prices in popular developments such as International City, the top area for buyers because of its affordability, are still sliding. Prices there fell 5 per cent in the second quarter compared with the first, and 7 per cent compared with the same period last year. They have dropped almost 30 per cent from their peak in the fourth quarter of last year, back to levels not seen since early last year. And even though they are now bolstering prices overall, sales figures in Business Bay are also still falling. Prices there peaked in the first quarter of last year and have since fallen 30 per cent. Despite government forecasts of population growth, many economists predict that widespread redundancies will result in lower demand for housing once the academic year begins in September. Also looming over the market, they say, are more than 12,500 units of property due to come on to the market by the end of the year. "Even if the exodus doesn't happen and everybody comes back, there's a lot of supply ready to be brought on to the market," says Mr Plumb. warnold@thenational.ae

Welcome to The Address, the land that downtime forgot

Feature Property has always been about location. In Dubai, residential property prices now seem to be driven largely by The Address.