Analysis

Why Dubai Is Booming but Could Become a Ghost Town

60,000 apartments are expected to go on sale this year in the luxurious emirate of Dubai, but it’s not entirely clear who will buy them

Dubai skyline.
Bloomberg

>> Princess Haya just fled abusive Dubai ruler. That's the smallest of King Abdullah's headaches

Urban renewal is a process of improving a city to support a country’s aspirations by creating spaces in which people want to live, but the heart of the idea is that communities take part in the planning decisions, Hussain Sajwani, chairman of Dubai-based global property development Company, DAMAC Properties, was cited as saying by the Gulf News newspaper.

Haaretz Weekly Episode 33Haaretz

Sajwani, whose father owns a small shop that sells watches, pens and other Chinese imports, is one of the world’s leading billionaires and his company is considered one of the largest construction companies in the Middle East. He’s gone a long way since abandoning medical studies at the University of Baghdad a year ago, and moving to the United States to study industrial engineering. He currently leads a new trend in Dubai and the United Arab Emirates of establishing residential communities that provide more than just pretty and spacious apartments, but also a new type of urban lifestyle.

The new term used in the construction world in the UAE is “social spaces,” which is based on three principles: Projects that adopt the principles of sustainability and environment; comfortable prices; and the strive to make residents living in these spaces happy.

For instance, a “city of sustainability” that will save residents 100 percent on electricity, 50 percent on water, and will not charge for municipal services in the first five years since its inception is being established in one of the seven emirates known as Sharjah.

Western studies find that social spaces are not only intended to save costs but to provide a lifestyle, which found that the tenants’ happiness depends on the character of the neighborhood in which they live, the interaction among its residents and the recreational activities they offer.

In order to meet these criteria, the giant construction firm Amar has decided to construct a large public park of 30,000 square meters (322,917 square feet) in the new residential neighborhood it is building that would include a skateboard rink, barbecue areas, and running tracks. The project will be decorated by artificial rivers, open pools and bicycle trails.

The understanding that more and more people, especially young people, aspire to work from home or to be close to people who work in similar jobs, has prompted construction firms to create joint work spaces like WeWork in residential areas. In such buildings one can rent or purchase studio apartments or one-bedroom apartments with a business license so that the owners or tenants could work from home. In one of these buildings a 2,000-square meter (21,527 square feet) lobby is being planned that will include spaces for computer stands, a music room, a game and television room, a pool and a gym.

Construction companies are required by the authorities to obtain formal permits to ensure their buildings and neighborhoods meet environmental and sustainability demands and are not allowed to launch any construction projects without such permits. But many companies go beyond the requirements of the law and build parks, cultivate gardens and create green belts in the new neighborhoods. But the new trends were not born solely to satisfy the home buyers.

The housing market in Dubai and throughout the UAE has been in quick recession since the world oil crisis in 2008, and the plummeting oil prices in 2014. The expectation is that real estate prices will continue to drop in the next two years unless there’s some dramatic change. These two big crises led to the departures of hundreds of thousands of foreign workers who owned these homes and had to sell them at great loss which sometimes reached 50 of the their value. Consequently the housing market is glutted with a housing surplus which immediately affected rental prices.

At the same time, the country decided to permit mortgages of up to 75 percent of home value that led thousands of families to a situation in which they couldn’t reach the third or quarter of the sum they needed (taking into account related expenses) in order to take out a mortgage. In addition, drops in the value of the ruble and the British pound have distanced Russian and British buyers from the market. Currently the assessments are that about 60,000 apartments would go on sale next year in Dubai, while it’s not entirely clear who will buy them.

One of the ways to overcome the mortgage obstacle is to rent out apartments to potential buyers and to include the rental payments in the purchase price. The tenants would pay market rental fees and would become owners after 15 years, by paying the rest of the sum via a new loan. The main obstacle this system faces is that the buyers who aren’t UAE nationals — who are the majority of buyers — must obtain longer term visas that until now have been granted only sparingly.

But recently the UAE has decided to grant longer term visas and ease purchase terms for foreigners, which could help the industry. It remains to be seen how the new building trend will affect the construction revolution that UAE companies are wishing for.