What went wrong in Dubai Palm Jumeirah?

Dubai called it “The Eighth Wonder”. The massive US$ 12 Billion showcase of Palm Jumeirah was a man-made archipelago in the Persian Gulf. Even from the space the Jumeirah was visible as a palm tree with trunks and fronds and definitely deserves its hubris. However the wonder did not last. Soon it became the “The Eighth Blunder”. What went wrong?

To build a huge rock & sand building over the sea, the developer of Dubai Palm Jumeirah had to do massive dredging and filling it up with huge amount of concrete fastened by rocks & sands brought from elsewhere. The first part caused dramatic ecological changes in that wave & sea erosion pattern making it go haywire. On the other hand, destruction of huge coral laden sea-shore caused the super structure somewhat unstable.

In order to prevent high waves lashing at the villas an outer breakwater of seven miles of length was built. This breakwater had additional purposes as well: to control sea current and to act as bulwark against “Shamal” winds originating from Iraq that blow across most of the Persian Gulf. By doing this the developer deprived the only source of cooling breeze that could rejuvenate the residents.

To tap it all sweltering heat & high humidity made life miserable to the residents. Without central air-conditioning installed residents who call themselves humorously as “prisoners” have to spend a wale of amount for air-conditioning.

Then there was another issue arose. Due to the functioning of breakwater, whatever water caught within the fronds started to stagnate and later gave nauseating stench. As an ad-hoc measure gaps were made over the break water but not without much avail.

Most pressing issue for the residents was the way housing intensity working against them. Originally only 2,500 villas were proposed to be built in the 16 fronds. Cost overlap due mainly to the miscalculation of per unit cost and the associated interest cost forced developer to increase the number of villas by another 1,500 making a total of 4,000 villas. Gone is the space between two units. The over-crowding had not only robbed the privacy of the residents as everyone can peer through his neighbour, but drained out the greenery that would have been there if sufficient landscape was made available.

Finally, the faulty supper structure was causing something unimaginable in this colossal venture. New York Times reported citing satellite scanning of the Palm Jumeirah that the whole edifice is sinking one-fifth of an inch per annum and expected to increase over the years.

For real estate development, business strategy dictates that an ECM study must be undertaken first. ECM is an acronym for economic, construction and marketing feasibility. Why developer of Dubai Palm Jumeirah ignored this, is the billion dollar question!

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

Business Bay Dubai, the vital strategic asset

Conceptualized as replication of Manhattan in New York and Ginza in Tokyo, Business Bay is an innovation in the city state of Dubai. Construction began in 2003 and by now most part of the mega project is complete and has morphed into a vital strategic asset.

A city within a city, Business Bay Dubai is a mixed commercial, residential and retail centre sprawling over 64 million square feet. Originally it was thought purely as business centre with focus on commercial buildings. However, the mixed development turned out to be a greater success.

Its location breaches the drenched part of Dubai Creek and extends from Al Khor to Sheikh Zayed Road. A network of roads, pathways and canals connect internal access. External transport connectivity covers Burj Khalifa, Dubai Mall and Dubai Canal. Thus proximity to downtown Dubai makes it an excellent location for tourists, business travellers and residents.

Well-known names in the hotel trade such as Hilton, Radisson and JW Marriott have their premium five star hotels inside the Business Bay. For dining there are restaurants from many cultures that have menus for Eastern, Western and Mediterranean cuisines. Wining and dancing in famous night clubs is indeed a pleasant experience.

Compared to Dubai Marina which is the number one stop for gracious living in Dubai, business Bay is almost next in terms of providing the type of luxurious living at affordable cost. For example, outright purchase of real estate apartment in up and coming Noora Tower is below 6.8 million AED. Annual rent for stores below 1,000 square feet is quoted around 82K AED.

While for short-visit travellers and tourists it is a better watering pee business travellers and long stay expats would find it as a boon in giving them opportunities to meet up with high profile businessmen and professionals.

Real estate Investors are the best lot to get the maximum from Business Bay. They have a pool of real estate assets to cherry pick from the mixed development project.  Return on investment averages at 6% per annum for property holdings.

The question remains how Dubai would incorporate this vital asset into her business strategy.  

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

Why rent to own property deals are popular in Dubai?

While housing is an economic necessity for owners/tenants on the one side and the government on the other, real estate developers everywhere come with innovative business tactics to get more people to move into built homes. In Dubai rent to own scheme has been introduced with gusto and has turned out to be the most effective business tactics.

The largest real estate developers such as Nakheel, Emaar and Azizi Developments are in the forefront bringing more UAE residents and the Expats into housing market where they can move into their dwellings with a smaller down payment than what is required for mortgage financing. This down payment may be 5% or negotiable according to the financial plans of the would be owners. It compares favourably with 25% equity value insisted by mortgage lenders.

In the case of expats there is a small snag; they prefer to rent apartments as tenants as they are not sure how long they are going to live in Dubai. The recent announcement that 10 year visa is made available and as a resultant fact, companies are pegging into longer term employment due to rising cost in recruiting skilled employees have given unexpected boost for longer than usual stay of expats.

Seizing up the market potential, real estate developers have come out with simple studio and 2-room apartments to expensive beach front villas that are available on rent to own basis. There are number of locations such as JVC, sports City and Palm Jumeirah with this facility.

Essentially rent to own works well with long term residents. Yet even those who are going to stay less than 10 years could opt for rent to own contract because at the time of leaving they can transfer the contract to another potential buyer with profits. Incidentally, these schemes stretch from 10 to 15 years in general with future rentals guaranteed by the developer.

Major plus point  for rent to own scheme as business tactics is that it saps over-supply of housing units either resulting from economic down swing or property down-turn. In fact it lubricates the marketing engine to function smoothly amidst financial crunch.

It does not mean these schemes are without any disadvantages. One big negative is the high premium that is added to the cash-price to absorb interest cost which in turn is spread over a period say 15 years. The monthly rental therefore contains the interest factor and is usually around 10 to 20% higher than rents of similar properties on tenancy agreements.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist

Structuring payment plan for real estate; Dubai displays the knack

Developers of real estate globally come with innovative ways in structuring real estate deals. For them payment plan is the major business strategy stool. Dubai real estate developers are the pioneering lots in this field as this blog post proves:

Danube Group, a premier property developer in Dubai priding itself as receptive to changes in the business environment, introduced  bomb-shell innovative business tactics. Pay 1% of the value of real estate on monthly basis and that is it. You can move into one of their affordable apartments. This, so far is the most innovative buyer incentive recorded in the entire history of Dubai realty.

Danube group is not alone in visualizing ground shaking business tactics. Emarr Group, an international realty developer has something new to offer to its Dubai clients. They do it in two ways: For off-plan properties the payments are back-loaded so that initial cash outlay by buyers is less. For readily occupiable villas, payments are structured as post-handover, once again to suit the purse of buyers.

In Dubai we find payment plans for apartments taking different mutations. While most of these specify standard rate or amount, the duration can be variable stretching from 3 to as high as 20 years. And there are non-standard flexible plans where payment amount differs from quarter to quarter to accommodate anticipated seasonal expenses of the buyers during school opening and year-end seasons.

There are negatives too. Payment plans are expensive at the end of contract period as the loading of interest factor jacks up the cost. Buyers would lose out on the price side as worn-out apartments would fetch much less in comparison to newly built ones.

Most real estate developers shun payment plans because these dampen the value of property that is sold for one-off cash payment. It also conveys the impression that the developer is financially weak and tries to un-load excess units. Third and most damaging aspect is that, the payment plan instead of stabilizing realty market places it in unstable zone.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist