Dubai condo apartments do roaring business

Guy Wilkinson Guy Wilkinson Uploaded




Dubai's condo apartments do roaring business The city of Dubai can lay claim to many records: the world's tallest tower, largest mall, why, even its five tallest hotels (the tallest being the JW Marriott Marquis at 355 metres, in case you were wondering).

Thanks to its reputation as a perfectly safe haven in a region full of strife, the city has become a firm favourite, not just with international holidaymakers, but with a market sub-stratum known as 'real estate tourists.' The opening of certain zones within the local property market, which had previously been leasehold-only for expatriates, to foreign ownership back in 2002 was a master stroke, which kick-started a development boom that continues to this day, despite a few less than stellar years following the global financial crisis.

Dubai offers either a peaceful life or a good return on investment, depending what buyers are looking for, and strange as it may seem, many leisure visitors to the city in recent years have come with an eye on buying property. Whereas after visiting Prague, by contrast, you may return home with a piece of Bohemian crystal, in Dubai, it may well be the deed to a new house!

It was just a few years into the property boom that one developer, the semi-state-owned Emaar Properties, thought of selling serviced apartments to individual buyers within the city's 'freehold-for-foreigners' zones. I worked on the original feasibility studies for Dubai's first three 'condo apartment' projects, to use the American phrase for this concept, back in 2004 and 2005. We looked as far afield the US, Europe and Egypt - the nearest Middle Eastern market with a significant condo apartment market - for precedents of the formula.

Nowadays these properties are known as The Address Downtown Dubai, The Address Dubai Mall and The Address Dubai Marina Mall. Each of these mixed-use complexes combined around 200 hotel rooms and suites with 400 condo apartments. These were originally sold with three options - buy to occupy, buy to let, or buy to invest. I understand that about 200 of the apartments in each project are now in the hotel inventory, the rest being essentially 'branded residential' units. Needless to say, these units sold like hot cakes and inspired many other developers to follow suit.

According to the latest research from my company Viability, there are now more than 20 operational condo apartment buildings and condo hotels in Dubai, with more than 7,000 letting units. In addition, there is a confirmed pipeline comprising 35 more such projects with around 12,500 units that are under planning or construction, as well as a number of others that have yet to be formally confirmed. Current prices range from US$500 to a maximum of $1,300 per square foot. Condo apartments have proven both popular and successful well beyond the city's most prominent freehold zones such as Downtown (home to the Burj Khalifa and Dubai Mall), Dubai Marina and The Palm Jumeirah, to include new communities in outlying areas, such as Dubai Silicon Oasis and Dubai Sports City in Dubailand.

Most recently, Dubai South, a new housing estate next to the world's future largest airport, Maktoum International and the Expo 2020 site, already has a couple of condo apartment projects. Following Emaar's lead, prominent condo apartment developers in Dubai include Damac, The First Group and IFA. Damac has recently announced a raft of projects using the condo apartments formula, promising some 25 of these for Dubai alone in unofficial announcements.

The company's most ambitious current project is the Damac Towers by Paramount located in the Downtown area, with 540 conventional hotel rooms (not for sale) to be operated by the new Dubai-based Paramount Hotels & Resorts chain, plus 1,400 condo apartments to be operated by Damac's own new management company under the Damac Maison brand.

The First Group, which boasts an effective network of sales offices in key target markets including Nigeria, has been successfully purchasing or developing condo apartment buildings and condo hotels in both primary and secondary areas. It has simplified the business model to investment only, and happily went on selling throughout the worst years of the recession, not to High Net Worth Individuals, but to anyone who could afford around US$250,000. A number of Dubai's condo apartment/hotel developers have outsourced the management of their properties to specialist hotel operators.

International chains now involved in the sector include Anantara, Armani, Bonnington, Dukes, Fairmont, Golden Tulip, Kempinski, Morgans, Movenpick, Park Regis, Rezidor, Viceroy and Wyndham. However, some of the largest international chains remain wary of operating condo units, because they distrust the local strata titling laws, which partly explains the many hotels coming up in Dubai freehold areas that still do not employ the condo model (the other main reason is that the developer may simply want to retain the asset in its entirety).

Regardless of such concerns, the condo hotel model has multiple advantages for developers, who can pre-sell all the accommodation units off-plan and enjoy significant cash flow benefits in regards to project financing. (This is subject to the restrictions of the 2007 Dubai Escrow Law, which requires developers to establish an escrow account for each project and restricts them from utilizing purchasers' funds for purposes other than the project). While enjoying the benefits of selling the letting units, the developer can also earn an often significant percentage of the on-going profits from their hotel-style letting on behalf of the individual unit owners.

Further, the developer can earn the full profits from any on-going hotel-style operation of food and beverage outlets, meeting rooms, etc, in retained common areas, less management fees in the case of employing a hotel management company. Having proven itself a surprisingly recession-proof business model, the condo apartments model is here to stay in Dubai. The latest iteration is condo hotels, in which standard rooms and suites are sold. Those of the Viceroy on The Palm sold out in a couple of months only, while several Wyndham hotels in Dubai Marina and some inland districts have also sold quickly. In the run-up to Expo 2020, Dubai's hospitality market can only get hotter, so if you want in, get in now!

Guy Wilkinson is a director of Viability, a hospitality and property consulting firm in Dubai. He is a speaker at the first annual Serviced Apartment Summit MEA, which begins today. For more information, e-mail: guy@viability.ae

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