Dubai is becoming less attractive for skilled employees

A survey in the UAE has revealed that Dubai is becoming less attractive for skilled employees due to the rising inflation.
The survey conducted by Bayt.com, a leading recruitment portal in the Gulf, and YouGov Siraj, an online research company, with over 50 employers and nearly 400 employees — expatriates and nationals — disclosed that 66 per cent of the employers feel that Dubai is becoming less attractive due to the rising inflation which is adversely affecting their chances of attracting the right talent.

The results, which were disclosed yesterday at the Dubai Economic Council (DEC) forum on The Future of Talent in Dubai, also noted that the residents' challenges included "the high cost of living, high inflation fuelled by obnoxious rents, falling dollar peg, compromising lifestyle to tackle inflation, traffic and parking woes".

Nevertheless, residents liked the emirate for its unprecedented growth, tax-free and crime-free environment.

On the employment front, however, the survey found that an overwhelming 90 per cent of human resources managers in private and public companies think recruiting employees is getting increasingly tougher than it was three years ago.

Some issues in finding the right talent include difficulty in hiring the right people and not being able to afford current salary levels. The biggest problem they face is finding people with leadership skills and passion for work. However, 68 per cent of organisations are ready or getting ready to address talent shortages.

The survey found that UAE nationals produce by far the highest turnover and are the toughest to retain, while Asian expats are the most loyal. They are also the second most likely to switch jobs. Well-qualified and good leadership skills is what employers expect, noted the survey.

Experts, on the other hand, observed at the forum that unless wage discrepancies between the private and public sector are not quickly tackled, companies in the private sector would continue to find it hard to lure young locals to work with them.

Dr Samer Kherfi, Assistant Professor of Economics at the American University of Sharjah, who gave a presentation on the wage structure in Dubai, said, "There is a large gap between the public and the private sector wages, where the private sector pays lesser. For equity purposes, Emiratis are paid more in the public sector. Besides, the pay structure is not linked to productivity."

He noted these are the reasons why the private sector finds it difficult to get Emiratis. "A lot of well-educated Emirati women are not part of the labour force and if they are, it could help deal with issues of labour shortage," he noted.

Khalid bin Zayed Al Nahyan, Chairman of the Executive Committee, DEC, said that if the skewed balance has to be corrected, incentives in the private sector have to be restructured and balanced. He noted that pay scales should match productivity, which needs to be assessed.

Dr John McHale, Associate Professor of Economics and Toller Family Research Fellow at the Queen's School of Business, Ireland, said, "The competition for talent is increasing in Dubai. The strength of the emirate is that it is employer driven. Highly skilled professionals are coming here to work."

/Khaleej Times/

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Land values set to rise further

The local real estate market is far from seeing its peak yet. The latest trends would suggest UAE’s residential real estate would hover in the range of $7,200 a square meter from the prevailing $4,066 a square meter.
‘We feel that, while real estate values have come a long way over the last five years, on a relative income basis there is still room for higher valuations’, says a report recently released by Al Mal Capital.

In fact, the report suggests UAE’s land values of the moment would be at the low end compared with courtiers with similar income levels. ‘Fro countries with per capita GDP in the $30,000-$40,000, the range is $3,595-$14,600 per square meter’, it notes.
‘At the top of the range is France with a top marginal tax rate of 40 per cent and at the low end is Germany with a top marginal tax rate of 42 per cent. The prevailing value in the UAE is at the low end of the range at $4,066 a square meter’.

For its report, Al Mal Capital compared the market on a per square meter relative to the per capita GDP across the world, but excluding London, Moscow and New York. It also did not make adjustments for the 0 per cent tax regime in the UAE, ‘which we feel significantly impacts the affordability of real estate.’

Significantly, it sounds a note of caution for property investors looking to place their assets in the rental market. ‘In our view, the combination of high rental yields, rental costs per square meter near global relative fair values, a growing mortgage market and purchase prices still low relative to income levels will drive yield compression over the next four to six years.

‘We expect yields to decline approximately 240 basis points on average over the next four years. However, we expect most of the yield compression to come in the low-to-mid price range.’

UAE’s current rental yields – an average 7.7 per cent – are high relative to markets running on the same macro fundamentals. Annual rent payments here average $314 per square meter compared with $194 in Germany at the low end of the $30,000-$40,000 per capita GDP group and $588 per square meter in France at the high end.

Future Demand

The dilemma that we face when looking to the market is to assess the ‘true’ demand for the future housing supply, while also judging the reliability of planned supply’, the report states. ‘We estimate that unit supply will be approximately 18,000 units for the three-year period between 2008 and the end of 2010.

‘However, in 2007 we project that only 30 per cent of planned units actually were delivered as the industry was hit by several production constraints. Contractors were constrained by an extremely tight labor market compounded by a new labor law that required much of the existing labor force to return home.

‘As these issues have, for the most part, been resolved, we should see gradual improvement from contractors meeting delivery schedules.’
For Dubai, the Al Mal Capital findings suggest combined supply to overtake demand only by early 2011. This would have to come on the basis of supplies touching highs of 66,000 units in 2010.

With regard to demand, the incremental household growth should taper off in 2009 and 2010, then going on to pick up again in 2011. This would be because much of the required personnel for the expected hotel launches and other tourism-related projects begin to offset drops from financial and development sector growth, the report adds.

‘Slowing growth in terms of new household entrants to Dubai should relieve some pricing pressure in 2009. However, we believe much of that relief will be mitigated by existing pent-up demand through 2010.

‘In Abu Dhabi, a supply shortage is substantially clearer. We do not expect cumulative supply to match cumulative demand until beyond out five-year projection. In fact, we do not expect a significant ramp up in deliveries until 2011.

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Swiss investment bank reiterates impact of potential property bubble for Dubai

The Swiss investment bank UBS is surprised that most regional observers seems to regards inflation as the biggest macro-economic risk on the horizon… and not a potential real estate bubble. But projects could end up in default and burden the banking sector.

The premier investment bank has raised its concern regarding the risk of a real estate ‘bubble’ to the UAE economy and being a greater threat to growth than inflation. In its latest report, the Swiss bank said after 2010 the realty environment could become more challenging, leading to a slowdown in Dubai and shift the focus of the property market of Abu Dhabi.

UBS expects about 150,000 residential units to be completed in Dubai in the next two years, bringing the market into balance some time in 2010. Thereafter, the housing market might well swing into over-supply.

That risk currently appears most relevant for the high-end residential market, which is seeing much bigger supply growth than the mid-market. There are already indications that occupancy ratios in the high-end segment are markedly lower than in the mid-segment.

This could have wide-reaching impact on the economy because the construction and real estate sectors contribute heavily to GDP growth as well as creating additional spillovers in other sectors, such as banking.

In the office segment, UBS said a lot of supply is in the pipeline, entering the market between late 2008 and late 2009 in Dubai and from late 2009 in Abu Dhabi. The office market in both Dubai and Abu Dhabi is also characterized by short-ages, with occupancy rates around 98 per cent and even higher in the prime locations.

The property situation in Abu Dhabi appears somewhat different, as the construction boom is less advanced there than in Dubai. In 1999-2001, Abu Dhabi imposed a construction moratorium, the impact of which is still apparently being felt.

The average weekly gain for the UAE’s real estate stocks was 4 per cent. Sorouh Real Estate has recorded a 218 per cent growth in net profits to Dh361 million (2007: Dh114 million) for the first quarter of 2008. The improved profit performance, representing 14 fills a share (4 fills in Q1-2007), came on the back of income from land sales at Shams Abud Dhabi, which was converted during 2007 from leasehold to freehold sales, as well as the good performance of the company’s asset portfolio.

The profit generated in the first quarter was derived from operating activities with no asset revaluations. The changes at Shams Abu Dhabi also meant revenue grew strongly, from Dh280 million in Q1-2007 to Dh624 million. The management says it is pleased to report another good financial performance for the first quarter.
Sorouh’s share gained 3.6 per cent during the week.

Aldar Properties reported a 196 per cent gain in first quarter net profits to Dh1.36 billion, up from Dh450.7 million in 2007. Gross revenues were Dh2.23 billion while the earning per share came to Dh.0.59 from Dhs.0.26 a share in 2007.

Aldar has confirmed developments worth Dh10.5 billion under construction, up from Dh8.33 billion in 2007. Its net asset value was up 21 per cent to Dh9.32 billion, from Dh7.68 billion in 2007.

The financial results come a week after Moody’s Investors Services assigned long term local and foreign currency issuer ratings of ‘A3’ to Aldar. Moody has described the outlook for the firm as stable. The stock price registered a weekly gain of 4.6 per cent.

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Propery prices up by 15% and could double

The price of oil spiked to $128 a barrel last week and has been taking Dubai house prices up with it. Even the most cursory survey of price changes over just the past two months shows 10%-15% increases across the board. This is probably the highest rate of change in Dubai property prices since the modern freehold revolution began in 2002.

In the US, the collapse of house prices since mid-2006 has been followed by the sub-mortgage crisis since last August. The policy response from the Federal Reserve has been to lower interest rates dramatically. This will allow banks to recoup their losses by increasing the spread between borrowing and lending charges, and gradually put a floor under house prices.

This dramatic loosening of monetary policy has had the nasty side-effect of stirring up commodity price inflation, most particularly in the oil market. For an oil-exporting country like the UAE, this means huge additional liquidity is flooding the banking sector with money supply rising at 37%.

Dollar peg

At the same time the UAE has its currency pegged to the US dollar so the nation has to track US interest rates downwards. Hence you have interest rates falling at a time of rising inflation, in short very high negative real interest rates.

That means the economy is effectively paying you to borrow money. So is it any surprise that there has been a huge dislocation of funds into real estate, further increasing upward pressure on prices?

This is not over yet by a long way. What message does a gain of 10%-15% in two months send to the marketplace? What greater encouragement do investors need when alternative investments all over the world look sick?

Well, how long will this last? Price gains of this intensity are not usually sustainable for long. But a 50%-100% increase in property values over the next six to 12 months is quite possible. After that the market would move sideways awaiting confirmation of its optimism.

Oil prices

Now with Goldman Sachs predicting an oil price spike of $150-$200 within the next 18 months that would suggest very much high property prices are obtainable and will be sustainable at least within that timeframe.

And let us not forget the supply side argument either. UBS has forecast that new property supply will begin to impact on the Dubai market by 2010, and if that came along with a downshift in oil prices – perhaps due to a global recession – then that would finally signal the correction.

But not before house prices reached very much higher levels than we see in the market today, with even observers from the world’s most highly priced property markets becoming shocked by prices in Dubai. Currently they still find the market good value.

/AME Info/

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Controversy: The Jews of Arabia

Many of us have heard of the famous advertising empire known as Saatchi and Saatchi, laughed at the jokes of Jerry Seinfeld, tapped our feet to the beats of Paula Abdul and shopped at Max Azria’s BCBG stores. So what do all these successful people from various industries have in common?

They are all of Arab origins.

The Jewish presence in what is now the Arab world dates back thousands of years; in fact, the very religion was founded in this region. Arab Muslims, Christians and Jews have been living in peace and harmony for centuries, so what happened? In short, after the violent wave of European anti-Semitism in the mid-20th century there was an exodus of European Jewry into historic Palestine, much of it forced, armed and violent, lead by groups such as the Hagana and the Irgun (who were responsible for the bombing of the King David Hotel).

Unfortunately, many Muslim Arabs from across the region reacted violently to these developments and decided to reciprocate; as a result, Jews who were living amongst them were shunned and assaulted. In Iraq, for example, about 120,000 Jews were compelled to emigrate to Israel, the US and Europe in just less than three years.

The streets of Cairo, the historic neighbourhoods of Syria, the mountainous terrains of Lebanon and the bustling markets of Baghdad were, for the first time in thousands of years, emptied of one of the most successful ethnic minorities living within their communities. Doctors, architects, businessmen, scientists, poets and writers started to pack up and leave, some with good reason and some to avoid the repercussions of the founding of the state of Israel.

It wasn’t all bad blood between the Arabs and the Jews; in fact, there were stories of heroism that have gone unreported and unnoticed in the Arab media. In the midst of the horrors of the Nazi occupation of France in the 1940s, the imam of the Paris Mosque saved the lives of scores of Jews by issuing certificates stating their faith to be Muslim. In Tunis, entire Jewish families were saved by a local hero, Khaled Abdelwahhab, who hid them in his farm at great risk to himself and his family; he was honoured posthumously for his bravery. As a result of such actions fewer than one per cent of the Jews of Arabia — who numbered in their hundreds of thousands — perished compared to more than 50 per cent of the Jews of Europe.

Since then, there has been predominantly negative coverage of Judeo-Arab relations. Europe, after the Second World War, was able to turn the page almost immediately, yet many Arabs still paint all Jews with the same brush used for Israelis.

In 1975, after the death of the Egyptian revolutionary leader Jamal Abdul Nasser, many countries in which he financed and encouraged revolutions were free from his pan-Arab nationalism and scaremongering and decided to take action in order to restore the social unity of their countries. The pre-Saddam Iraqi Revolution Command Council issued advertisements in The New York Times and elsewhere inviting Jews to return to their home countries and guaranteeing their rights. Sadat’s Egypt and Hafez Al Assad’s Syria also issued such statements.

In recent history it has only been two forward-thinking Middle Eastern kingdoms of Morocco and Bahrain that have broken the mould of suspicion towards their Jewish citizens and integrated them into the social and political spheres. The first with the case of André Azoulay, an adviser to the previous and current kings; and the latter with the recent appointment of Huda Ezra Ebrahim Nonoo as the new Bahraini ambassador to America.

Today in New York City alone there are more than 75,000 Jews of Syrian origin, many of them educated in the best schools, speaking or understanding Arabic and still having an affinity for Syria. Is it not possible to imagine that such persons have the right, if they so choose, to be full citizens of Syria?

Is it not time to reassure the Jews of Arab origin that their ancestral homes are mature enough to welcome them back if they decide to invest, visit or even take up citizenship? If football players who spend a few months in the Middle East are given citizenship, shouldn’t people who have a natural birth-right, tremendous wealth and valuable education and skills be given the same?

Of course such statements will be met with criticisms and reminders of what the Israelis are doing to our Palestinian brothers and sisters. To that one can say that in the Middle East, no one has been more cruel and violent to Arabs, more exploitive of the Palestinians and more manipulative of their cause than Arabs themselves. Do we forget it was Iraq that invaded Kuwait, Egypt that encouraged bloody revolutions throughout the region and mostly militants from the Arabian Peninsula responsible for atrocious crimes of terrorism in Iraq? We ourselves have been the victims of unfair generalisations by the Western media, but should we learn from past lessons, or should we continue to reciprocate?/By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities, Dubai.

Source

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Dubai traders' expectations stay upbeat

But small traders are less optimistic than larger companies

While there had been no significant statistical change in traders’ expectations between 2007 and 2008 in Dubai, large traders who employ more than 20 workers appeared to be more optimistic than small traders with less than 10 workers. In addition, the machinery and industry inputs sector had a higher-than-the-average expectation score.

There observations were the results of a survey conducted by the Dubai Chamber in the fourth quarter of 2007 on 1,190 traders, of which 441 responded, on their expectations for the year 2008.

The results of the survey were recently revealed during the 2008 Economic Seminar hosted by the Dubai Chamber, which included the presentation of their study about inflation in the UAE, as well as that of a study made by the Center for Responsible Business (CRB), which marked the second annual survey of attitudes and practices of corporate social responsibility (CSR) in Dubai during the summer of 2007.

On the survey on traders’ expectations for 2008, the business sectors covered included vehicles, textiles, consumer goods, household goods, industry inputs, machinery and those in general trade. Sub-domains included employment size such as those with less than 10 employees (small), 10-19 employees (medium) and 20 and over employees (large).

According to Marietta Morada, senior research staff at Dubai Chamber, who made the presentation of the survey results on trader’s expectations for 2008, on a scale of one to 10 with 10 representing the best expectation, the traders’ expectations for 2008 was 6.6. this score represented a slight increase from 2007’s score of 6.5, but is considered to be statistically insignificant, according to Morada. The average score of traders’ expectations during the first two years of the annual survey in 2005 and 2006 was 6.9.
“Overall, I would say that the traders of Dubai are maintaining a favorable assessment of the entire trading sector,” Morada said.

Marked decline

With regards to the business sectors, the textile traders’ group appeared to have the lowest expectations of less than six. However, in terms of a statistically significant decline in the average score, the consumer goods sector fell from close to seven in 2007 to less than 6.5 in 2008 while household goods also showed a declining pattern from a high of 7.5 in 2006 to just slightly above six in 2008.
On the other hand, in terms of a rising expectation, the industry inputs sector and the machinery sector were the ones with the highest expectations for all the years of above seven in 2008 from above 6.5 in 2007.

As far as the size of traders in relation to the number of employees, those employing on to nine workers appeared to have a relatively stable expectation score but had the lowest at below 6.5. The medium-sized traders, with employees numbering between 11 to 20, declined slightly but maintained an above 6.5 score. On the other hand, large traders with more than 20 workers had the highest increase in their expectation score from seven in 2007 to above 6.5 in 2008. Exporters and the mixed trade sector remained stable at above 6.5.

In terms of the general market demand for their product, majority of the traders indicated that they have good expectations for the year. However, in 2008, the survey indicated a shift from good and very good to average.
“There is no downturn of expectation this year,” Morada observed. “It will just be maintenance of expectations from last year. The year 2008 is expected to be similar to the previous year.”

Citing the reasons for the traders continued positive outlook in 2008, population growth was the top reason at above 75 per cent. Other reasons included improving buying capacity of the population as the population of Dubai shifts into people with higher buying capacity, favorable preferences, and expectations of product prices to increase, expansion of product variety, no fear of competition, increasing outlets, increasing festivals and favorable trading regulations.

Negative outlook

On the other hand, those with a negative outlook cited reasons such as difficulty in supply procurement, rising process of goods for resale, declining product quality, declining buying capacity, unable to establish new stores and outlets, no new festivals and fairs, and perception that certain government rules are unfavorable.
For the traders’ sales expectation in 2008, the survey revealed a rising expectation to 56.7 this year, up from 54.2 in 2007.

On the issue of competitiveness of traders, while the 2007 expectations survey indicated that, it is in pricing where traders feel they are most competitive; traders have now shifted to other aspects of trading such as product quality, ease of purchase, inventory management, advertising and location.

With regards to the factors that trader feel are affecting or limiting their business potential, high property rentals and high operating costs remained as the top two factors in 2007 and 2008. However, while keen competitions were cited as the number three limiting factor in 2007, this has been replaced by high transport costs in 2008. The keen competition factor dropped to number five as the traffic situation remained the top foul limiting factor in 2007 and 2008.

Meanwhile, another study at the Dubai Chamber has found that world prices of imports currency depreciation, rents and money supply have been fuelling inflation it the UAE economy. The world commodity prices have been increasing during the last five years, the IMF world commodity price index has more than triple between the beginning of 2007 and the start of the second quarter of 2008.

Rising demand

Prices for energy, metals and agricultural goods have all risen as demand for commodities have increased in a growing world economy. At the same time, suppliers have remained relatively stagnant. The rising commodity price increase the supply costs for businesses and this follows through higher prices for consumers.

The UAE currency, the dirham, is pegged to the US Dollar in a fixed rate and the US Dollar has been depreciating against the world major currencies.

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Proper planning for related infrastructure is important when launching new projects

There are many so-called ‘community developments’ in the UAE these days, and more and more keep coming. But one can often wonder whether the main developers of these projects have really put in the required thought and planning necessary to ensure ultimate success of these.
Of course, they will argue strongly that they have – international master-planners have been used, top-level architects consulted, comprehensive infrastructure considered and lots of time and money invested in making a ‘quality environment’ that meets the needs of the community.

The reality though is that very few of the community developments delivered so far have, in fact, met the full requirements of the community. Sometimes, the reasons are beyond the control of the master developer, and that is more excusable.

But very often it is just because insufficient thought and expertise has been allocated to the pre-development stage.

Consider, for example, the Arabian Ranches (planned and developed by Emaar). A great concept – equestrian facilities with a desert’ style golf course, and a community shopping center for the residence.

To a greater or lesser extent, much of this has been delivered, but did anyone think about the increased traffic flow on Emirates Road, especially as Dubailand-related projects moved into the construction phase, and later still, the occupation phase?

Clearly not, I guess, or we would not have had to see a massive re-development of the traffic circle to accommodate this factor, which has a hugely debilitating effect on the residents to get in and out of their community especially at peak times. Emaar will argue that this is an RTA issue and beyond their control, but surely and major developer would be in collaborative consultation with the provider of roads and, in particular, traffic access and egress to their project site long before taking the project to the market?

I was recently witness to a presentation on a huge development, which was more of an urban planning process than just development plan and was impressed with the level of thought that had gone into the pre-development stage. This was less along the lines of exactly what the project needed to have and more along the lines of what type of experience the developer wanted resident and visitors to their project to have.

Apparently, the mandate to the master-planners identified six key requirements:

Memory – This related to the traditions and history of the site and an effort was to be made to retain these essential elements.

Pleasure – This had to do with the relaxation and recreation elements of the project, and was primarily related to the resort, and especially the beach and golf course zones.

Nature – The environment was to be protected but more than this, it was to provide open areas for residents to rest and play, parks and sports fields, and natural undeveloped areas to be enjoyed.

Art – This element related to the cultural and learning aspects of the development, and provided for both specialized educational facilities as well as broad based entertainment aspects.

Energy – This was the description given to the main commercial zone, where there was to be higher living densities and a sharing of resources and facilities. This is where business will be generated and careers built.

Family – There was to be allowance made for areas for the family to gather, children’s play areas, shopping and entertainment, food and beverage outlets, medical facilities, etc.
One could argue that there are other factors that are important and relevant, I am sure. But I liked this ‘Big Picture’ view of considering a living environment in which thousands of people are going to interact with each other on a number of different levels.

It moves away from the specific and deals more with the ‘experience’ that living in this community will offer. If the high level objectives contained in this mandate are constantly referred to in all planning aspects, then the details of what is to be done, and where and how, will start to take care of themselves, and specific infrastructural design will work around these criteria.

It is interesting also to note that the pre-development planning stage of this project has taken some two years where as I would guess that many of the master-planned communities that have been launched in recent years have taken much less time to conceive and to get promoted in the market.

Generally speaking, in this are of development, less time means less input from experts, and less time to consider and make adjustments, and this often equals to poor end quality of the project.
Furthermore, as the saying goes, the proof of the pudding is in the eating. The ultimate long-term success of a development would be measured by the sustained demand for residential properties or commercial space by companies with in the zone, which translates into continually rising values.

This is the measure of its real success, and the jury is still out, I think it is fair to say, on quite a few existing development zones that in the short-term appear to be winners.

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Opportunities in local hospitality sector attract major chains

Lease Contracts will continue to rule supreme for major chains casting and eye on opportunities in the local hospitality sector.
“You don’t have freehold in the best locations as a foreigner, that’s for sure,” says Sascha Lang, Director of Project Development Europe & Middle East, Shangri-La.
“But I think it will change, especially in Dubai. In the long run more and more owners are looking for lease contracts. For example in Dubailand foreign investors want to have land.
“But the land cost is tremendously high, so are building costs. That is why they are looking to go in with lease contracts.

Across prime Middle East destinations, the hospitality sector now operates mainly on management contracts and for good reason. “In the EU with management contracts you go nowhere as you don’t have such powerful companies anymore like here,” comments Lang.

“Here it is similar to Asia – you have a lot of financially powerful owners. They want to have an icon, they want to be proud of saying that they have a Shangri-La, Four Seasons, as my operator, but it is my building.
“It is still a bit of prestige thing, which helps companies of five stars deluxe to get nice management agreements.”

In addition, it is easier to operate in new markets with a local partner. Shangri-La goes for that option in India and the Middle East.
“Egypt wouldn’t work by owning ourselves. Lebanon can, but it is better to be in bed with someone who is locally established,” comments Lang. “For sure management contracts in this part of the world are still recommended.”

Accor Hospitality records a similar experience. “Local partners have more ability to retain land rights which speeds up our development. Otherwise you have problems of ownership and investment,” Says Phillipe Baretaud, the Development Director for the region.

“In Qatar even for an Emirati it is difficult to invest. The GCC has huge amounts of liquidity – so we do not need money but focus mainly on management contracts.
“And not franchise because we need to keep control over quality.”

The group still owns 25 percent of its hotels, primarily in Europe. This is despite a Continental trend of the last couple of years with an ‘asset light’ policy being adopted by the larger hotel groups such as the InterContinental Hotel Group.

“They sell the brand and the franchise under pure management without investment in the property. It is about listed companies which need to have more liquidity, a better debt ration and focus on management,” adds Baretaud.

Accor has seen a reason to lighten its ‘load’ to a lesser extent. Its 2010 development plan calls for just over 60 per cent franchise or management contracts worldwide.

“It puts worldwide pressure on development because your portfolio has to live on franchise or management revenues, and losing a lot of revenue generated by owning hotels,” the official adds.
“You need five managed hotels to offset what you have lost by selling another property in terms of revenues. You get the fees but you don’t get the bottom line.”

In other words, more liquidity is great, but it puts pressure when it comes to competing. “Hotel companies today are beaming brand sellers with huge investment in marketing as you have to convince investors that your brand provides the value you need to outperform the market,” adds Baretuad.

Asset Right vs. Asset Light

Accor therefore went for what Baretaud calls the ‘Asset Right vs. Asset Light’ policy. It uses the money ‘won back’ from sales wisely.

“We sell a lot of our hotels in Europe and America for variable leases or longterm management contracts. We then refinance by pumping this cash into strategic developments and acquisitions, equity shares and complementary opportunities in emerging countries,” he explains.

One strategy is to take advantage of joint ventures, as is the case in Pakistan. “We are willing to invest through partnership and manage on a joint venture basis, not franchise for quality control. Our investment is based on brand strategy, which means that we invest mostly in the budget segment but go for management in the four-and five-star segments,” Baretaud.

Shangri-La, meanwhile, prefers to own. Only about 13 out of around 50 hotels forming its portfolio are managed. “Owning ourselves means that we are not under pressure to just sign to grow like other companies with management contracts,” Lang explains.

“As our head office is in Hong Kong it is difficult to manage contracts with different owners. So where we do have to manage we keep it as simple as possible with least owners.” Lang explains. The Shangri-La properties in Abu Dhabi and Dubai for instance, have the same owner.

In addition, owning hotels as an operator can also makes specific sense depending on the circumstances. “We used to manage our hotel in the Maldives, but then the owner had financial difficulties and we took it over, he explains.

Other hotel group with intentions to expand in the Middle East might ‘mix and match’ between these strategies.

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Commercial Space Market Analyses - Space Crunch

The Gulf region is suffering a severe shortage of office space and the situation is unlikely to change for some time.

Across the world, the hunt is on for available commercial space. According to market research company, Cushman & Wakefield, which recently published a guide called Office Space Across The World, 2007, the global office market has boomed in recent years, and with it, the prices developers are able to charge for the properties’ rent.

Compared to 2005, which recorded market growth a 4.4 per cent, 2006 was a stellar year for commercial rentals, whose collective growth reached 12.2 per cent globally, the report revealed. As a result, the office rental markets in all regions improved throughout the course of the year.

Of the 211 markets surveyed across 50 courtiers, 74 per cent demonstrated rental growth. By comparison, 20 per cent experienced stable rents and just 6 per cent, or 12 markets, saw their total rental figures decline. The request is the same world-wide: a good location at the right price: “As business sentiment has picked up, take up across all regions has improved, although demand remains focused on the best quality space in the most convenient locations”, reports Cushman & Wakefield analyst Elaine Rossall.

The Middle East commercial property sector could be said to be the victim of the Gulf’s well performing oil and gas markets in particular. The region’s buoyant economies have drawn a mass of new business to the region, but I is clear that it does not, at the moment, have the infrastructure necessary to accommodate their needs. And though there are many drivers behind the MENA region’s buoyant economic performance, which last year saw it achieve annual rent of 32 per cent, high oil prices over the past few years, combines with strong levels of foreign investment, are largely responsible for the region achieving the highest annual rental growth of all the global regions surveyed.

IN TOP GEAR

Underpinning the MENA region’s tight market for office space has been the phenomenal market performance of Abu Dhabi’s commercial sector. “The success of the region in general has been in part due to the huge increases seen in Abu Dhabi, which posted the highest global rental growth of 200 per cent, but all key locations in the region saw good rental growth,” explains Rossall.

Such reports put Abu Dhabi in a league of its own. Its closest contender in terms of overall commercial space growth is India, which was responsible for almost all of the top 10 best performing markets in the world, particularly its suburban locations. Adds Rossall: “Thanks to a boom in financial services and IT, as well as stricter building regulations, rents in most key markets in India have skyrocketed.”

But in terms of overall rents, Kuwait was the star performance this year. Responsible for charging rents of nearly $920 per square meter in 2007, Kuwait also had the second highest level of rental growth in 2007. Year-on-year, this say the country realize an overall rental growth figure of 41 per cent. But Abu Dhabi is not far behind at $890 per square meter.

But the region’s market leaders are not setting a hard act to follow, or not for the rest of the MENA region, which recorded rental growth across the board, and did not show a single stable or declining market.

According to Nicholas Maclean, Managing Director of Los Angeles-based CB Richard Ellis, the region’s strong showing is set to continue, as demand continues to outpace supply, particularly in Doha and Dubai. “I expect office rents in these regions to increase by about 20 per cent over the next year-and-a-half, as demand outpaces supply and international business expand in the Gulf”, predicts Maclean. “The highest quality offices spaces in Dubai cost as much as $135 per square foot but this could rise to $160 per square foot during the next year to 18 months.”

SUPPLY SQUEEZE

Across the UAE supply of office space remains extremely tight. Fortunately, this is set to ease in Dubai as a series of building projects come online in the region in 2008 and 2009. But the same cannot be said for Abu Dhabi. “Supply pressure is unlikely to ease in Abu Dhabi, given the smaller pipeline”, predicts Rossall.

Across the Middle East, political incidents have impacted on office space demand, and some incidents such as the Israel-Lebanon war have impacted the region’s property sector negatively. In other cases, however, conflict in the region has been countered with strong performances in the commercial markets. For example, the ongoing difficulties in Iraq have made Kuwait a preferred base for reconstruction and military functions, as well as a safe base from which international companies prefer to operate.

Beyond the Gulf, Cushman & Wake field predict the global market for office space will concise to perform strongly, as rents rise across even more locations. On the whole, it predicts that demand, which it found is already healthy in most markets, should remain strong, and probably improve in the majority of locations. “We predict rents will rise further and n more locations”, concludes Rossal. “Demand, which is already healthy in most markets, should remain strong with the potential to improve in the majority of locations. Even in markets where take-up is expected to remain stable, demand is generally healthy and the limited supply should continue to crode vacancy rates.”

Should there be political stability in the region, and also a further expansion of multinational business, it seems the Middle East will remain a market leader throughout the world’s commercial real estate sector.

STRONG DEMAND

Demand for commercial property in the UAE has been strong this past year – so constant, that overall deals in 2007 Q4 fell in response to a lack of supply. But although the value of deals might have fallen 11 per cent, sustained demand caused average prices to rise 1.2 per cent.

Due to the strong demand for commercial property in the UAE, Dubai now ranks number 10 in research firm Cushman and Wakefield’s Most Expensive Location ranking, behind New York and ahead of Seoul, London tops the rankings, followed by Tokyo and Hong Kong.

Last year Dubai’s commercial property market witnessed phenomenal growth. Local real estate agency, Better Homes, reported a massive 500 per cent growth in commercial sales over the first three quarters of 2007, and revealed a continued high level of demand on the leasing side, largely because of rising capital values, growing investor confidence and increased market regulation.

According to Colliers International, the average office rent in Dubai is currently (Dhs 220) per square foot. But Andrew Chambers, the Managing Director for Colliers International, says prices across the city vary as is the case with any country: “I would compare areas like Sheikh Zayed Road and DIFC (Dubai International Financial City) to the West End or the Docklands in London, “ says Chambers. “At the lower end of the spectrum you find the bigger free zones.”

Evidence reveals that the biggest demand for commercial space in the UAE is coming from multinational corporations (MNCs). Continues Chambers: “There is a high demand from large multinational companies for office spaces of 1,000sq ft or more.” Fortunately, for those businesses in search of suitable office spaces there are various initiatives in the pipeline that will in time case the bottleneck. A number of office developments are currently under construction in the city, especially near the new airport at Jebel Ali. These alone will add two to four million square foot of office space to the overall market. In the meantime, low vacancy rates will continue to drive high rental rates, particularly in case of offices greater than 1,000 sq ft.

“A lot of the Fortune 500 companies are after spaces of two, three, four or 5,000sq ft for efficiency purposes,” Chambers adds. “So there’s not only a lack of space, but a lack of those bigger plots that are so much in demand.”

But there is respite ahead. In 2008, Dubai’s office space is expected to double, with the delivery of the first significant chunk of the 51 million sq ft planed expected to come online between now and 2010. By this stage, all of the office space currently in the pipeline should have been delivered. All going to plan, the available stock in the emirates should, by this stage, have tripled. And though Chambers is not confident supply problems will be eased in the near future, he predicts prices will at least plateau outside of the high demand areas. “By the end of 2008, early 2009, I don’t expect office rents to go up much more, except along Sheikh Zayed Road and in the DIFC.”

By comparison, the demand for office space in Abu Dhabi has been phenomenal, a result of its strong economy and growing popularity as a business hub. In 2007, HSBC Global Research Report found the office market in Abu Dhabi had occupancy rates of 99 per cent, making it tighter, even, than the residential market. Considering the global average for vacancy rates is 9 per cent Abu Dhabi’s vacancy rate of 1 per cent is extremely low. And at 2 per cent, Dubai’s vacancy rates are only marginally higher.

The main problem is that Abu Dhabi has a severe shortage of purpose-built primary grade buildings. What little it does have is owned largely by government or semi government organizations. With density running at almost five times the global average, and five times that of Dubai, commercial space is therefore almost impossible to find.

The Abu Dhabi office sector has, over the years, grown in spurts. Between 1982 and 1983 office space in the emirate doubled, and since 2000, available commercial spaces have grown again by 50 per cent. Today, the city’s total supply is equivalent to 460,000sq m Abu Dhabi’s problem of office space shortage is made worse by another issue – poor building. At present, most of Abu Dhabi’s buildings are of secondary or tertiary grade, and all suffer a lack of dedicated parking facilities, according to Colliers International Global Office Real Estate Review Midyear 2007. “The quality of the city’s remaining stock (besides primary grade office buildings) is low”, argues Colliers International analyst for Europe, Middle East and Africa, Robert Pearlman. “The finishes of the buildings are generally fair and they offer functional space, but they lack modern communications systems, services and design efficiency.”

There is approximately 415,000sq m of office space under construction in the capital. The emirate’s business community awaits its delivery with anticipation, but whether it is prepared to pay premium for it when it comes online is another question.

The scarcity of office space in Abu Dhabi resulted in average rental increases of 30 per cent between 2005 and 2006. But the level dropped to 10 per cent in 2006 and 2007 following the introduction of a government rental cap. Despite this move, however, rents are predicted to rise until adequate market supply enters the market. This is not expected to be the case until at least 2009.

The demand for office space in Abu Dhabi looks set to increase as the emirate continues on its path to diversification and introduces a number of industrial, financial and free trade zones. In 2006, there were approximately 60,000-licenced businesses in Abu Dhabi and the Abu Dhabi Chamber of Commerce and Industry forecasts the number will continue to grow at an annual rate of 5 per cent. In order to meet this demand, more than 850,000sq m of office space is planned by 2011. This will increase the emirate’s total supply by 85 per cent. Evidence suggests the change cannot come soon enough.

50 COUNRIES ACROSS THE WORLD WERE AKSED THEIR THOUGHTS ON THE GLOBAL OFFICE MARKET AND:

■ Seventy per cent of countries predict that there will be a drop in vacancy.
■ Stable vacancy rates are expected in just fewer than 10 per cent of locations.
■ Sixty per cent of countries forecast a strengthening in demand.
■ No markets in the Middle East expect a drop in demand.

/Cushman & Wakefield/

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Jumeirah Village emerging as attractive destination for investors

With some serious problems related to the master plan and infrastructure having resolved, Jumeirah Village is finally emerging as a viable destination for investors. Also boosting its chances is the fact that Dubai Metro will be serving the development from the north and south via the Blue and Purple lines.

These favorable trends have seen the master development recording the highest gains in commercial sales prices – 50 per cent plus – during the first quarter of the year compared with the fourth quarter of 2007, according to the latest findings from the real estate companies. New projects are being launched in a fairly significant premium compared with the earlier ones.

However, average prices on a square foot basis are still the lowest compared to other developments; this is due to Jumeirah Village being located away from major existing and upcoming business hubs.

Meanwhile, prices are firming up for the commercial offerings in Business Bay and DIFC, with quarter-on-quarter gains of more than 40 and 20 per cent respectively. Sale prices in Business Bay have increased significantly as construction progresses at a fast pace and the first set of towers nearing completion this year, as well as its prominent location next to Shaikh Zayed Road and Downtown Burj Dubai.

The primary drivers behind the price gains continue to be high demand, limited supply and delay in construction.

The situation in the office rental market remains just as tight having increased by 22 percent on average in the first quarter compared with the same period in 2007. It is then no surprise that this is well above the latest annual rent cap of 7 per cent.

This discrepancy is largely due to new projects being released with higher rental rates than existing ones in the market.

At the same time, the sequential q-on-q increase has been less than substantial at 8 per cent on average. Muraqqabat and Satwa recorded the highest increases with 19 and 10 per cent respectively. The factors behind the increase in Muraqqabat include the easy access via the recently extended Garhoud Bridge, the close proximity to major government departments and the upcoming main terminal (Union Square) of the Dubai Metro.

Satwa is increasingly seen as the extension of Shaikh Zayed Road, which is reflected in the significant sales price increases. Bur Dubai, the banking district of Dubai, has recorded consistently high demand for office space and which is reflected in the rent increase.

At the same time, many areas have not recorded significant increases due to high occupancy rates, lack of movement of tenants, the long waiting lists and delays in construction. Rents in Jumeirah Lake Towers have seen changes as many tenants were unaware whether they had to register with DMCC as JLT is considered a free zone.

With clearer regulations now in place, investors expect rents to increase in JLT as many buildings are nearing completion this year.

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Controversy: The Myth of Islamic Finance

One of the latest additions to such urban legends as the Loch Ness monster, UFO’s and environmentally friendly land reclamation is what is now known as Islamic Finance.

A new scam that started in the second half of the twentieth century and only really took off in the last three decades. One could wonder why the Islamic world needed 1,400 years to invent such a system. One may also wonder why we never hear of such terms as Christian, Jewish or Hindu Finance?

How it works?

In a process known as Murabaha a person decides to purchase an asset (car, home) via an Islamic bank which buys it in its own name and immediately “resells” it for a higher amount which ultimately works out to be equal or higher than conventional interest. In the meantime the bank retains ownership of the asset until the client is able to pay back the entire amount plus the finance charges. Basically, Islamic banks make more money and take much less risk, the burden of which rests solely on the Shariah compliant client.

How it started?

The development of this fast growing industry that preys on the religious beliefs of 1.2 billion people is that a few terms were literally translated from English into fancy sounding Arabic words to appeal to the pious. Words such as Lease became Ijara, Bonds turned into Sukuk, Joint Venture changed to Musharaka and Insurance morphed into Takaful.

The truth is, all the above words are literal translations from English to Arabic and have nothing to do with Islam. For non Arabic speakers it is similar to saying flat in British English and apartment in American English which is very acceptable. What is not acceptable however is when one is expected to pay much more to buy the very same flat should the seller decide to call it an apartment in the contract.

Also, for those who believe in the sham of Islamic banking, turning a regular bank into an Islamic one by changing its name or logo does not make it an “Islamic bank”. It is clearly set in Islamic principles that if money that was used to start a business was itself tainted then everything that was built upon it is so and cannot be laundered or white washed no matter how many fatwas are collected.

There are various reasons behind the emergence of this belief-finance system. In Malaysia it was seen as a way to grab a share from the more developed hubs of Hong Kong and Singapore; in the Gulf, Western banks wanted to offset any migration of long established customers to fledgling banks that have window-dressed their names as well as capture a new slice of the $1.5 Trillion estimated wealth in the region.

Is it regulated?

Once again, as in the case of the Arab League, GCC Customs Union and the Peace in the Middle East, it was decided to outsource the establishment of what make up so called Shariah compliant regulations to the Western world. Even so, the current lack of standardization of Islamic Finance came under attack in a recent McKinsey report that called it “an industry that is little more than a collection of national strongholds."

For an industry that claims it has $500 Billion dollars under management having "no common approach on regulatory frameworks” as a KPMG report found coupled with a “lack of transparency in operations" doesn’t bode well for its clients.

Did you ever wonder why in the Kingdom of Saudi Arabia which is the cradle of Islam there isn’t one openly Islamic bank?

And yet the UAE with 20% of KSA’s population has five such banks, three of them white washed. In KSA when a client goes to open a deposit account banks openly ask her if she wants a “riba account” which means an account that pays interest, the majority of clients decline as it is seen as "morally unacceptable" which leaves the banks to rack in the profits. With deposits approaching $150 Billion in 2006 and little interest charges to pay the clients no wonder they are amongst the most profitable banks in the world.

A professor from the Wharton School in the US argued that it serves little purpose to extend financing with interest charges using a set of tricks that disguise them as something else. In today’s world, more and more people are looking for salvation, even if it was a trick; in this case salvation got an Islamic disguise. /By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities in Dubai.

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Controversy: The Sorry State of Real Estate in the UAE

Not a single day can pass without yet another extravagant announcement of a new real estate project that defies gravity, the law of nature and the laws of finance.

There is something to be said about the lack of government supervision that extends from allowing firms to issue press releases that are clearly stretching the truth to broken promises that start from delivering these real estate projects late or never, to jeopardizing the reputation of the UAE by mistreating foreign labour.

A curious case comes to mind with Tameer a local development company that claims to have 300 billion dirhams under development which roughly accounts for 75% the GDP of Abu Dhabi. The firm also announced a project “in excess of $20 Billion” in Libya which has a GDP of $36 Billion. Does this make sense to any one as it clearly escapes my understanding? How does the government allow such press releases, and how does the local press publish it without verification? To put things into perspective, this is similar to someone claiming to have a project “in excess of $7 Trillion” in the USA (roughly 55% of the GDP).

Damac Properties, which is one of the few homegrown brands to go regional claims to have a portfolio “in excess of $40 Billion. This is clearly an example of a company that bit off more than it can chew, a local news report found that out of fifteen advertised projects in Dubai that the company is developing “all are running substantially behind their projected completion schedules” to the extent that investors were threatening to withhold future payments to the developer.

Oddly one of the few publicized cases of real estate developers fleeing the country after selling off plan projects to unsuspecting investors to the tune of AED 14 million has yet to be resolved.

Copy Cats

Another issue plaguing the real estate sector that is quite interesting is the copy cat culture that is about to make our beautiful city of Dubai into a Sameville mini-me of other cities around the world. There is more than one project that promises to replicate the Eiffel Tower of Paris for example, as if copying individual landmarks wasn’t enough one project even threatens to replicate the entire city of Lyon in Dubai. A contender for the most profuse project award has to be the Falcon City of Wonders that promises to replicate “the Pyramids, the Eiffel Tower, the Taj Mahal, the Great Wall of China, and the Leaning Tower of Pisa”. Tatweer also has its own replication process going on within the Bawadi project.

Don’t people realize that what has made Dubai great is the spirit of entrepreneurial originality? Shall we wait for a project that promises to replicate the entire city of Abu Dhabi in Dubai or maybe the holy shrine of Mecca?

Labor Pains

A different case of construction woes emerged in the Fall of 2007 when 40,000 employees of Arabtech went on strike over low wages that according to the official UAE news agency “turned into riots” with stones being thrown at the police, this situation could have been explosive for the entire country if one considers that the size of the Dubai police force is around 15,000 personnel, i.e. they were outnumbered three to one. The management of Arabtech must be proud now that they have reported a 115% increase in profits to $93 Million in 2007 despite the serious damage to the UAE’s reputation and social security.

Basically because the company didn’t meet the laborers demands for AED 90 million increase per year (a sizeable 25% of their profit) the UAE was negatively featured on the front pages of various newspapers, websites and TV stations around the world as a country that doesn’t treat it’s “guest workers” fairly, is this worth the damage?

Other Emirates

Sharjah’s real estate development qualifies to be the least planned in the UAE, with problems in parking, electricity cuts, water stoppages and general frustration on the sorry state of the roads a daily headline in the local press all of which seem to be on course to staying the same.

Abu Dhabi should pay attention to the plight of its sister emirates before launching humongous projects inside the relatively calm capital island that will result in traffic chaos similar to what Dubai is experiencing today.

How to even account for such a fabulous collective failure of engineering imagination and planning?

Clearly the UAE authorities were not prepared for such a fast pace of development. For a country that proudly claims to have $500 Billion worth of real estate projects under development it is high time for the federal government to finally enact serious nation-wide laws and regulations that will set this haphazard industry straight. /By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities in Dubai.

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The pen, the book and a boss in an abaya

A quiet revolution is taking place in the Arab states of the Gulf, but this one needs no demonstrators, slogans or weapons. It is being undertaken by the pen, the book and the abaya. In what are supposed to be some of the most patriarchal societies in the world, women are taking the helm with and without the consent of men.
At colleges and universities throughout the Gulf, women are not only enrolling but graduating in larger numbers, and with more varied degrees, than their male counterparts.

In Qatar, for example, the ratio in universities is at an impressive four-to-one in favour of women. This transformation is quite astounding, so much so that it will start to affect the demographic balance in these societies as women look forward to marrying equally educated men, who are slowly becoming a rare commodity.

The tables have turned and it is the woman who is about to expect certain features in a potential spouse. After decades of neglect, even women from conservative backgrounds are being offered opportunities to learn in women-only colleges in the Gulf. In a decade or two, employers in the region will be facing an unprecedented situation. As governments enforce more stringent quotas of nationalised jobs, bosses will have to choose from amid women and a singular male applicant for the same post. Women, being more qualified and, according to various testimonies, harder-working, will be a natural choice.

As men continue to drop out of universities in pursuit of careers that offer immediate compensation with less entry skill requirements, such as the police and the army, women will be in a prime position to access what has been until now men-only domains, such as diplomacy, family businesses and the courts.

In truth, it is not the first time that women in the Gulf are taking charge. The natives of this peninsula can hear stories from their parents and grandparents of a time not so long ago when pearl diving was its “oil” and fishing its bread and butter. As the pearl-diving season would extend from April to September, men would be absent from the households. Women would be in control of not only their own homes but much more. The streets of the coastal towns would be almost empty of men in their third, fourth and fifth decades, which meant that women had to act as vendors, artisans, chefs and craftsmen. Grandparents would take their young girls with them to market, where they would learn how to pick fish, vegetables and other household items. They would learn how to trade and barter.

The young girls would then be sent to a madrasa (now an infamous word, but one that actually translates only as “school”), where they would learn to read and write (many of them courtesy of the state of Kuwait), vital skills that were in much demand and scarce among men. Many of these women would end up raising men of power who would become ministers, rulers, businessmen and decision makers, and whom we see today in official circles and on Fortune lists.

It seems the powers that be have finally recognised the importance of equating women with men in fields that were taboo just a few years ago. Qatar took the first step in appointing a female minister, Bahraini women were pioneers as ambassadors and judges, and the UAE recognised women in the business field.

Even ultraconservative Saudi Arabia has been unable to ignore the role of women in society: two women serve as directors in the Jeddah Chamber of Commerce and Industry, the kingdom’s most celebrated film director (even though cinemas are prohibited) is a woman and the popular and forward-thinking monarch has openly remarked on several occasions that the day when women will end up behind the steering wheel is not too far away.

Do not be surprised if one day, as you walk into business offices in the Gulf, you see men working in ensign positions and a woman behind the door that reads “Manager”. Know that this phenomenon has been in the making for many decades; it has been a long journey with many prejudices and much chauvinism, but the day will come as the region transforms into a meritocracy when you will look into the eyes of the lady in a black abaya behind the desk and utter the words: “Yes, boss.” /By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities in Dubai.

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Construction delays can erode deveopers' credibility in the long run

Delays and unmet schedules have become the phenomenal at most of the Middle East construction projects and sites. The delays have left the market with frustrated clients and contractors facing money losing situations.
Feasibility studies for these projects, based on certain periods and schedules to be achieved, have turned out to be unreliable.The right solutions must be found to overcome the uneasy situation that have started to be a feature of all the construction sites.

It is important to highlight the causes of these inevitable construction delays and the appropriate actions. The design process of any project plays a major role and many times the factor causing delays can be rectified at this stage itself.

When designers do not fully incorporate a client’s requirements or introduce new market trends, it proves a major factor for delays at many of the projects across the region because of the need for reworking. Smart systems can be one example.

Another reason could be the requirement from the facilities management company. Some clients recognize this issue and start to award design-built-operate and maintain contracts. A well-studied and designed project which fully meets the clients’ and the authorities’ requirements stands better chance to avoid such delays.

This stems from not needing to redesign due to unfulfilled requirements from the authorities or even time-consuming technical problems that could crop up later in the engineering stage of the project. Too many provisional sums force construction sites to receive contractors in the latter phases of the project.

This could increase mistakes due to a lack of co-ordination and unplanned jobs. Minimizing the provisional sums tracts in the tendering phase will save many delays. Many sites suffer due to an inability and lack of resources to award contractors.

Careful attention and accurate evaluation for the bidders and awarding the job to the right contractor can avoid the delays. One should remember that unrealistic construction schedules and milestones will be hard to stick by.
They also leave the contractors struggling and desperately trying to get an extension of the time claims, the target programs, and going for 24x7 working hours by doubling or tripling the manpower to catch up.

Once an accurate program is in place with the right duration and workforce allocations, strict implementation and adherence will push the project on the right track. All delays shall be monitored on weekly basis, stating the reasons, and the responsible party taking corrective actions.

Getting the approval from the concerned authorities – municipality, civil defense, water and electricity – in the design and executive phases could be a time-consuming task. Nobody can estimate exactly how long it will take for approvals and permits.

Delayed milestones such as sourcing the power or the cold water delivery from the district cooling company would hinder the whole project. So the earlier the contractors start, the better are their chances.
A dated action plan for all approvals should be prepared, and controlled and monitored carefully to ensure the utilities deliver to the project at the right time.

Addressing the labor issue

Many workers have no formal training or permit to execute their specific job, which not only means that the projects take longer, but also leads to an increase in on-site accidents. Worker conditions are generally bad.

The workers’ protests in Dubai may trigger labor initiatives all over the region for better salaries and accommodation. Low productivity and quality is the result of an unskilled and unsatisfied workforce on construction sites.

Training, better salaries and better accommodation for workers can help finish projects on time with a reasonable quality.

Low safety standards lead to injuries and fire accidents on sites, which in turn lead to further delays as well as loss of credibility for the contractor. Therefore, it is important to rise awareness about safety measures.

The logistic on-site and material storage spaces should be addressed in the beginning phases itself, especially in tower developments with no available space around.

The mobilization and demobilization the temporary power options will also save many working days.

Material supply

A shortage in the supply of materials, increase in steel and cement prices and the Gulf currencies’ connection to a declining dollar have been the other factors impacting on project time lines. Suppliers are overwhelmed by the demand and the delivery schedules and often fail to meet the client’s expectations.

The long lead item arrival dates should be monitored carefully to ensure material arrival schedules match the construction programs. A good idea is to plan ahead for material shortage possibility and to have alternative suppliers on standby for the critical long lead items.

The coming of new legislation may force the market scenarios to change. For example, projects may face a re-design situation to be in sync with the green standards that are to be enforced in Dubai soon.

Discussions about the five-day week laws are ongoing, and all are worried about more delays if this is applied.

Every aspect of construction project can lead to a delay in case is it not well planned.

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Seasonal housing price patterns

A seasonal pattern exists in the Dubai housing market, and analysts have noted an annual spike in prices in September/October over the past few years. This is when the summer holidays are over and the wealthiest expatriate families return to town. It is also when new expatriates are most likely to choose to arrive and business activity picks up.

The summer slowdown in the booming Gulf States is of course nothing like it used to be in the old days. Then you could pack your bags and head to Europe in late May and return in mid-September and not have missed a thing.

Now business activity continues over the summer, with most expatriates on contracts that only allow for a month of holiday, and a good deal of planning work gets done over the summer. In the real estate business too, people do buy and sell property over the hot months.

But there is a point when rushing around with documents in almost 50C temperatures does become rather wearing for all but the most dedicated, and the big decision makers tend to be absent. The argument for waiting until cooler weather returns then looks very attractive.

Sleepy summer

The result is therefore that the real estate market cools down over the summer months and then tends to burst back into life in the autumn. More buyers mean that prices tend to go higher, after a few ‘distressed sales’ over the summer months, and sellers who can wait for this moment generally do just that.

In the heat of the summer there are always a few sellers whose patience or finances run out and for the real bargain spotter this can be a good time. Indeed, flipping on properties bought in the summer into the buoyant autumn season is a clever trade.

Why should it be any different in the summer of 2008? There are some concerns that the Dubai property market is overheating, although new project launches are sharply down on a year ago and the new escrow account system is working well.

The cancellation of one project on the Palm Jebel Ali by Damac Properties has caused some ripples in the local market. But pessimists about Dubai real estate are always with us, and have been proven wrong so far.

Autumn price spike

Surely this autumn the prospects for renewed interest in local real estate, and another autumn price spike are better than ever. Local interest rates are falling, and with high inflation there are negative real interest rates in Dubai. That means the local economy is effectively paying real estate investors to buy property.

Meanwhile, the supply of property particularly in the affordable category is well below demand from the constant flow of new expatriates into the booming emirate. And on the basis of international comparisons Dubai real estate remains cheap, albeit with prices now rising sharply.

With the local and global stock markets delivering negative returns for investors this year, and deposit accounts paying miserable interest rates, Dubai property stands out as one of the few asset classes with upside potential, and money usually flows to where it will achieve the best returns.

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The Brand " Dubai "

In February Dubai Chronicle conducted a survey between 50 000 of it's readers from different countries around the world.
The question, common for the large population of over 80% Expatriates in Dubai, was “Would you live in Dubai for long?”

Despite the rising inflation, the increased fines for traffic violations and the new water and electricity tariffs Dubai proved to be a very attractive place to set up a home, raise children, build a carrier and in general envision the future for good 41% who have expressed strong confidence in the city's prospective.

24% from the survey participants were more considerate and would prefer take their freedom and make up their minds according the circumstances. Their answer was “It depends” - no gamble with the future!

But the ever lasting “rat race”, part of Dubai’s cosmopolitan character, apparently did not appeal to 30% of the readers who have chosen the firm “No”.

However, no matter of their long or short lasting intentions, total 97% readers expressed position, which indicates that people around the world are well aware of Dubai, the life style and the opportunities it offers. Only 3% remain in the area of “I don’t know”.

Dubai is famous and well recognised all over the world. Not necessary every one likes it, but almost every one knows about it.

There must be something more into it than good marketing strategies or smart public relations management….
(By Gergana Mineva, Editor)

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SeaWorld should be scrapped

Dubai's mission to become one of the great tourism destinations of the world took a backward step this week with the announcement that it will be opening its own version of SeaWorld as part of a complex of theme parks on Palm Jebel Ali.

The Middle Eastern playground city has a proud record of innovation and fearless investment in attractions for holidaymakers. Burj Al Arab, construction of which began back in 1994, was a massive gamble at the time: a self-proclaimed 7-star hotel in a city that at the time was little more than an import and re-export town built around its port industry.

The hotel could so easily have become a white elephant, had the world's super rich shunned its extravagant interior. Instead, it became an iconic landmark that told the world that Dubai was open for business as a luxury tourism destination.

Investment in Emirates Airline and the expansion of Dubai International Airport was also taking place during the early nineties. The idea of creating an aviation hub to rival Heathrow, Schipol or O'Hare seemed ludicrous at the time, but visionary with hindsight.

The current construction of Dubailand might not appeal to the more cultured tourist, but it amounts to an almost unimaginable transformation of barely habitable desert into a centre of entertainment that will create jobs, wealth and smiles on the faces of millions of young children.

All of these projects, along with Dubai's indoor ski slopes, gargantuan shopping malls, state-of-the-art public transport systems, ecological hotel resorts, and world-class sporting facilities belong in the present and the future of the global economic ecosystem.

SeaWorld belongs firmly in the past, and should be banished to remain there. Dubai does not need it, and tourists should not want it.

The business of wildlife conservation has made considerable strides in the past 30 years. There was a time when zoos and marine parks played an important role in protecting endangered species with breeding programmes.

Today, those breeding programmes take place in the habitat of the animals they are designed to protect. Dolphins are being nurtured in the seas off the West coast of Scotland; elephants and rhinos are being carefully and successfully managed in vast national parks in Southern Africa; tigers are no longer being hunted to extinction in India, and their numbers are increasing in safe zones.

Ironically, SeaWorld and its parent organisation Busch Entertainment Corporation, appears to agree. The business has its own conservation fund that runs myriad projects across the world - almost entirely involved in protecting wildlife in its natural habitat.

While this non-profit conservation enterprise is welcome, it feels a little like rich countries' obsession with carbon offset programmes - they are designed to assuage the guilt of those that do the most environmental damage as a substitute for stopping that damage in the first place.

The world is becoming richer in more ways than one. People have the money to travel to see wild animals in their natural habitats - be that on land or at sea. And the conservation of huge nature parks is improving to the benefit of the animals that roam them.

There is no future for bringing land or sea animals into captivity and making them perform for the public. Dubai is a city that constantly plans for the future, but allowing SeaWorld to open makes it look stuck in the past. Source

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Demand, not supply, is current food inflation driver

The era of relatively cheap food, which was never really cheap for millions of people, is clearly drawing to a close, opined a UAE English daily paper.

The current global food shortage is the result of high demand, said the Gulf News.

The threat of hunger and famine, it said, again stalk the planet after a stark warning in a report by the UN agency whose responsibility is to combat hunger.

"The World Food Programme urgently needs an extra $500 million a year to deal with the soaring cost of food and may even have to cut back on distribution." The price of wheat in the US has now hit $20 a bushel. While price increases in oil and gold grab the headlines the cost of a food basic, such as wheat, has greater ramifications for global security, according to the paper.

For the past 30 years, it said, new technologies and freer trade combined to make food almost continuously cheaper. The price of wheat, for example, dropped by more than 80 per cent between 1973 and 2000, factoring in overall inflation.

"In the last year, however, creeping rises became a surge. The real cost of wheat is now more than double what it was a few years ago. For rich nations this means spending more on food, for those countries less well off the rising price of food can be measured in lives and disease as well as political instability." Demand, not supply, is driving the current food inflation, said the paper.

"Meat and dairy produce are being consumed in greater numbers in newly prosperous parts of the world. On top of this the planet is entering a phase where some food is not grown to be eaten but to produce fuel and this has consequences for global farming." Climate change too, continued the paper, is having an impact as drought and flooding combine to wreck harvests in countries that used to export their food but now have to ensure that their own population have enough to eat.

"Food and water are the most basic resources, a shortage of either will have profound consequence," concluded the paper. (WAM)

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Bracewell & Giuliani offers tips for US business success in UAE

Few Americans truly understand the Persian Gulf confederation of the United Arab Emirates. Yet, the UAE's US$130 billion in annual oil revenues, as well as a unique geographical location and a favourable business climate, makes the UAE an attractive market for US-based energy, oil and gas, financial service and consumer goods companies.

Attendees at a 12 February breakfast briefing hosted by Bracewell & Giuliani learned from partner David Stockwell, Managing Partner of Bracewell's Dubai office, and other Bracewell lawyers, how to meet the unique challenges of doing business in the UAE.

“A recent assessment by a major consulting company ranked the UAE as one of the ten most attractive foreign investment markets in the world, a fact symbolised by energy and construction giant Halliburton’s relocation of its headquarters to Dubai,” Stockwell said.

“Yet the UAE only offers market and profit opportunity to those investors who truly understand the ins and outs of doing business there.”

“Our firm has advised clients about doing business in many regions of the world, from Latin America and Europe to Central and East Asia,” Stockwell continued. “The legal, regulatory, tax and cultural factors necessary for business success vary from country to country, but the one constant is that developing advance knowledge of a country’s business conditions and requirements is a prerequisite for successful business operations.”

“There is no one-size-fits-all answer to engaging in commercial operations in the UAE,” said Bracewell partner Ron Erlichman, a member of Bracewell's International Business Group. “Every company’s circumstances and objectives are unique, and their UAE business approach should reflect that.”

Observing certain guidelines will make it easier for American businesses in Dubai to succeed, the meeting heard. Some of the key issues noted by John Couch during the discussion, a Bracewell International Tax partner who recently relocated to the Dubai office, include:

US laws on such matters as export controls, foreign corruption and anti-boycott regulations must be observed, even in the UAE.
There is increasing pressure for companies to employ UAE nationals, who comprise a mere 10% of the population.
Foreign real estate ownership is limited to certain designated locations.
While there are generally no corporate taxes in the UAE, hidden imposts do exist.
There are no restrictions on repatriation of capital and earnings and the UAE’s currency is tied to the dollar, although the pegging of the UAE Dirham to the US Dollar is currently being revisited.
“Most important,” Erlichman concluded, “as with most foreign markets, sensitivity to cultural nuances are vital when dealing with UAE nationals and the government. Developing the relationships and mutual trust that are essential for success in the UAE will help companies take full advantage of this open and dynamic market.”

Bracewell & Giuliani is a prominent international law firm with more than 400 lawyers in Texas, New York, Washington DC, Connecticut, Dubai, Kazakhstan and London. It serves Fortune 500 companies, major financial institutions, leading private investment funds, governmental entities and individuals concentrated in the energy and financial services sectors worldwide.

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UAE property prices to soften in 2010

Rental rates and property prices will start softening in 2010 when 70,000 residential units enter the UAE market, followed by a similar number in 2011, according to a new report.
"This is expected to lead to a decline in prevailing rental levels in 2010 and 2011, especially of the current stock in reflection of the lower comparative qualities with new master-planned supply," Shuaa Capital said in a report titled Vision 2008.

A downward adjustment is expected in property prices after an initial resistance to market forces from the prevailing price levels in 2010-2011. The Dubai-based investment bank anticipates that pent-up demand will free up with the price and rental rate correction and allow the market to balance. All in all, it expects a healthy net gain post correction over today's property prices.

Planned projects indicate that developers in Abu Dhabi are over-focusing on high-end apartments, and Shuaa believes most demand is in the low-to-mid income groups. As a result, many opportunities are being missed in the lower income groups that represent the majority of the population.

The residential segment continues to be the premier destination for real estate investments in the UAE, with Dubai, and increasingly Abu Dhabi, being the major attractions. Over the past year residential property prices and rents have continued to increase, fuelled by growing demand, supply delays and a degree of incompatibility between supply characteristics and the demand profile, the report said. However, the Dubai and Abu Dhabi scenarios are not identical. Abu Dhabi is witnessing a similar pace in demand growth to Dubai's, with one major difference - no material supply before 2010.

The first is anticipated to move into a stabilisation mode with easing prices targeting the high-end apartments segment, Abu Dhabi is simply shifting into full acceleration.

Property prices have reached new highs, with downtown Dubai properties selling in the range of Dh25,000-30,000 per square metre, up around 30 per cent over the past 12 months. Average property prices in Dubai are estimated to have increased by about 15-20 per cent in 2007.

Properties in Abu Dhabi are being launched in the range of Dh12,000-20,000 per square metre. Occupancy levels in both cities remain around the 98 per cent level, as rents increased in Dubai by 15-20 per cent and about 20-25 per cent in Abu Dhabi.

Dubai and Abu Dhabi have knocked off a further two per cent from the rent cap, bringing it down to five per cent. Both governments seem to be trying to hold back rent inflation, but a mixture of construction delays, "innovative" landlords, low tenant awareness and lack of proactive enforcement coupled with a flood of new tenants is pushing rent inflation well beyond the targeted caps. Dubai is expected to see supply of almost 56,000 new units in 2008, followed by about 60,000 in 2009. In 2010, Shuaa expects about 37,000 units to be delivered. This results in a total of 153,000 units over the next three years, taking into account adjustment for potential delays.

"Our experience suggests that around 40-50 per cent of planned supply is missing the target by roughly 12 months. We have assumed that 50 per cent of planned supply will miss by 12 months in 2008, decreasing to 30 per cent in 2010. We believe developers will gradually improve their delivery performance as the implementation of the escrow account framework gains momentum," the report said.

The escrow account, in theory, means advances received for off-plan sales will be deposited with an approved third party financial institution. Funds will be released to developers in tune with progress in funding requirements for the specific project, subject to construction progress verification by an independent surveyor. The underlying assumption is that developers want the money sooner rather than later. However, the escrow account alone will not solve the entire problem, as a construction capacity restraint is another major reason behind delays. The result is probably "fewer delays" rather than "no delays", Shuaa said.

Residental Segment

High-end apartments, outside the emerging downtown Dubai area, are expected to be the premier target with a price correction in the range of 15 to 20 per cent.

The investment bank estimates a cumulative demand for the three-year period (2008-2010) of 119,500 units. Demand in 2008 is estimated to be almost 35,000 followed by 39,500 and 45,000 units in 2009 and 2010, respectively.

The composition of the coming supply indicates that more than 30 per cent of the units are made up of high-end apartments and a sub-segment has started to show signs of declining occupancy. A fourth-quarter 2007 survey by Colliers International found about 30 per cent of high-end apartments in the upscale Dubai Marina area vacant, with competition between different high-end offerings - Dubai Marina, The Palm Jumeirah and Downtown Dubai - heating up.

A recent survey by a leading recruitment agency, found that those in the highest paid group, which earns more than Dh18,000 per month, made up 11 per cent of the total workforce.

Even with cash-rich foreign buyers boosting demand for this type of properties, it is expected that the segment will see average occupancy levels drop to around the 70 to 80 per cent level.

The exception, according to Shuaa, will be units around the emerging Downtown Dubai flanked by the Dubai International Financial CentreDubai International Financial Centre and Business Bay. These properties are expected to find strong demand powered by the new central business district (CBD) rising in the area. Occupancy rates in the other segments are expected to stabilise around 90 per cent. However, given the growth pace of the UAE population and economy, demand will be able to absorb most excess supply, going back to the 2006 and 2007 supply levels by 2011.

In Abu Dhabi the story is different, as supply is scarce and demand is rising. Landlords are sitting on gold, tenants are plenty and rents are skyrocketing, the report said.

Abu Dhabi residential property stock is not community/master-plan based, of a lower grade than Dubai, typically excludes parking space and rents are at a 10-20 per cent discount compared to Dubai.

However, in terms of value for money, the two are roughly the same.

Abu Dhabi rents have increased by about 25 per cent annually since 2004. Despite all this growth, supply is expected to be limited in the run-up to 2010. As a result, rents will continue to rise at a rapid pace and could very well exceed those of Dubai over the next three years. Property prices will follow, as pent-up demand continues to pile up.

Office Segment

Dubai's office market is continuing to suffer from a shortage of office space, especially in the free zones such as the Dubai International Financial Centre (DIFC)Dubai International Financial Centre (DIFC). The waiting list for offices in DIFCDIFC is reportedly so long that it takes anything from 12-24 months to get an office for qualified companies. Occupancy rates are around 98 per cent.

Annual office rents are estimated to be in the range of Dh2,400-4,000 per square metre, depending on location and office quality.

The DIFCDIFC is reportedly the most expensive area closely followed by the rest of Sheikh Zayed Road. On the lower-end of the range it is areas like Bur Dubai and Deira that dominate, with typically older office buildings, lower standards and heavy traffic congestion.

Going forward, the investment bank estimates oversupply starting in 2008 and culminating in 2009 and 2010. However, it expects most of the new supply in 2008 to be picked up rapidly, given the supply shortage experienced over the past three years. "Starting in 2009 we expect to start witnessing a more rapid switch for many companies from the older CBD to the new one along Sheikh Zayed Road and further down to the Tecom area. However, these large supplies are expected to apply downward pressure on rents, especially around the Bur Dubai and Deira region."

In Abu Dhabi, the current office stock is estimated to be around 1.4 million square metres. The city lacks a defined business district and suffers from low standard office stock. Yet, annual office rental rates in Abu Dhabi are estimated to be in the region of Dh2,500 per square metre, up around 20 per cent over the past 12-month period. The office stock continues to enjoy full occupancy levels and companies are outgrowing their existing offices with no clear alternative.

Based on the investment bank's revised projections, Abu Dhabi is expected to see limited supply of office space in 2008 before an expected jump in 2009 and 2010. "We expect most office supply to be pre-let well in advance of completion and do not at this stage envisage a price correction. On the contrary, we expect prices to continue rising albeit at a lower pace in 2009 and 2010." Source

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