Dubai property growth to slow to single-digit levels, says Damac founder

Growth in the Dubai property market will slow to single-digit levels for the foreseeable future, according to Hussain Sajwani, the founder and chairman of Damac Properties, one of the UAE’s flagship developers.

Mr Sajwani, speaking exclusively to The National in an interview, said that the days of 20 to 30 per cent annual increases in the property market were over, and that the “price levelling” experienced by Damac and other developers in the past six months would continue.

“The drop during the crisis was dramatic, but so has been the recovery, with 20 to 30 per cent increases in 2012 and 2013,” he said. “To have that level of increase for a third year would be a bad thing. At Damac we see it close to single digits for the current year and beyond – between 8 and 10 per cent.”

Damac’s business has boomed along with the increase in prices, with big projects launched in Dubai over the past 12 months. But the firm is unlikely to embark on further “mega-projects” over the next five years, unless more land becomes available.

“We always look for new opportunities, but you’ve got to find the right one. If another parcel of land becomes available, we might be interested, but as things stand we have sufficient land and financing for the next five years,” he said.

Damac has three big projects under development in Dubai: two big villa and apartment complexes – Akoya and Oxygen – on adjoining sites, as well as the Damac Tower project with the Hollywood group Paramount near the Burj Khalifa area.

“At Akoya, we’ve sold most of the villas and a large number of apartments. Oxygen is also selling well at competitive prices. With Paramount, it has done phenomenally well and the four towers have been majority sold,” Mr Sajwani said. Ocean Heights by Fendi in Dubai Marina was also selling well.

He said the slowdown in price increases was due in part to measures taken by the Dubai authorities and by developers to reduce speculation in off-plan sales, on which Damac’s business model is based. “Speculation has been reduced dramatically. Speculators are being driven out of the business,” he said.

Off-plan buyers at Damac developments are required to pay 20 per cent of the value of properties up front, followed by another 20 per cent payment after six months, reducing the opportunity for “flipping” of properties, he said.

However, he added that margins in Damac’s core business in the UAE would be maintained. “They will not drop because we have sufficient land and land prices are not increasing. We have enough land for five years.”

Damac’s financial position was strong, Mr Sajwani said, with low gearing and land purchases already funded through internal cash generation and via debt instruments such as the US$650 million sukuk this year. Gearing was low compared to sector averages, he said.

The group is in the process of transforming its year-old listing of global depository receipts (GDRs) on the London Stock Exchange into ordinary equity on the Dubai Financial Market (DFM). The move was delayed but Mr Sajwani said it would go ahead. “It will be soon, inshallah. The Securities and Commodities Authority [UAE regulator] has been helpful but they have to do their homework.” The DFM listing would give the stock more liquidity, he said.

Damac would focus on the GCC markets, he said, rather than the wider Middle East and North Africa region. “We think the GCC is very stable, and it is our hometown. It will continue to do well, regardless of the oil price fall. Why should we go to countries like Libya, Syria and Yemen? Those countries have fundamental problems and why go to unhealthy places?”

Damac had “no intention” of any further projects in Egypt. The group had settled legal issues arising from changes of government in the country, and all litigation and arbitration had been resolved, Mr Sajwani said.

Dubai would remain the main focus of Damac business, although Damac has two projects in progress in Abu Dhabi and has purchased more land in the capital. Projects are continuing in Saudi Arabia and Qatar.

“Dubai enjoys a fundamentally strong position. No other city can come close to Dubai. It has 20 or 30 cities nearby that have all kinds of issues, and these people want to come to Dubai for all kinds of reasons.

“Dubai still has a relatively small population, but that is growing. The forecasts are that Dubai will need 360,000 freehold units over the next five years, but over the past two years all developers combined have not produced 18,000. So there is no likelihood of oversupply for the next three to five years,” he said.

Damac would continue to focus on high-end luxury developments. “It is in nobody’s interests for Dubai to be cheap. Affordable housing is for other developers,” he added.