Rising construction costs threaten Dubai housing boom; overlooked commercial sector may offer opportunities
Rising construction and land costs have slashed Dubai property developers’ profit margins by 25 percent in the past year, the Gulf Times newspaper reported.
The residential market is bracing for a surge of new residential units that have been built or planned since Dubai opened its property market to foreign investment in 2002.
Investment research firm Prime Emirates said in August that 105,000 residential units would be completed in Dubai by the end of next year, creating a surplus of up to 33,000 units by 2008.
Hamid Yazdani, general manager of High Rise Real Estate, whose company is constructing 35 buildings in Dubai, said the cost of cement and steel has risen 20 to 25 percent in the past year, cutting into developers’ sizable profit margins.
Meanwhile, developers may be overlooking the commercial sector, which might still be attractive despite rising construction costs because the it is underserved, said Harshit Kantaria, managing director of property management firm Aspire.
Kantaria estimated that 90 percent of the property under construction in Dubai is residential, and said that not a single commercial project has been completed since 2002.
Major office developments, which include Business Bay and Jumeirah Lake Towers, will only hit the market in 2008 and 2009.
Observers have estimated commercial prices will rise 50 percent a year, at least, until 2008. They have climbed 200 percent in the last two years, the Gulf Times reported.
Ireland may be overpriced after decade of growth
Prices in Ireland may be too high, investors say, after more than a decade of double-digit percentage increases.
Housing prices in the island republic have increased an average of 10 percent each year for the past 13 years, according to the International Herald-Tribune.
The Organization for Economic Cooperation and Development, in fact, recently reported the country’s 53 successive quarters of property price increases was the longest property boom it has recorded.
It also reported that Ireland’s real estate may be overpriced by as much as 20 percent, and cited concern that rising interest rates may lead to a sharp downturn.
Last year, the sale of Walford, a 4,000-square-foot house on Shrewsbury Road in a south Dublin suburb set an Irish record when it sold for about $70 million.
Developers willing to pay top dollar are also responsible for driving up prices in areas of the Irish capital, where they can tear down existing homes and build multiple houses on one site. Native buyers flush with money due to Ireland’s economic resurgence are the main purchasers, instead of foreign buyers looking for a bargain as in previous years.
“That would be typical of every development that has been marketed in Ireland recently,” said broker Ronan O’Driscoll, director at Hamilton Osborne King. “It has been taken up by the local market rather than international buyers.”
Mexican housing market feeds off U.S. capital
South of the border, the Mexican housing market is continuing to feed off American dollars.
Legal problems and fraud have previously kept foreigners from investing in Mexico, but recent legal changes allow foreigners to own property through bank trusts. Brokers say the boom in Mexico’s real estate industry is also a result of partial ownership developments, where foreign investors can buy a share of a condo or a home.
Despite the softening of the U.S. housing market, Americans are continuing to invest in second homes in Mexico. This year, foreign investment in Mexican housing is expected to reach $20 billion, reported the Los Angeles Times, up from $17.6 billion in 2005.
The shifting market could change things, however.
“The cooling real estate market could take this from being a very, very positive trend to a mildly positive trend,” said economist Christopher Thornberg.