Wednesday, March 23, 2011

Reclamation is the Way to Go!

By: Aljehani, Mohammad
Reclamation is a treasure key on the water surface that attracts a lot of land developers. I would like to touch on this subject specifically in Dubai; how does reclamation affect the supply and demand model of market equilibrium in Dubai, how does it satisfy the market for space over there, and does it change the notion of cycle, fluctuation, and production lags in real estate market? However, before I proceed into these points I would like to give a brief background about Dubai and what the word reclamation means.
Dubai is one of the seven emirates of the United Arab Emirates (UAE) country in the Middle East. It has been one of the fastest growing cities in the past ten years. Dubai has arose as a global city and a business hub; even though Dubai’s economy was initially built on the oil industry, nowadays its revenues are mostly from tourism, real estate, and financial services. Dubai has recently appealed world attention through many advanced large construction projects and sports events. Dubai adopted the idea of reclamation when they have seen that there is an increase in the demand of real estate property, and increase in the population as well. The word reclamation is defined as the process to create new land from sea or riverbeds.
As a response to the high price of real estate property in Dubai, Government and land developers decided to head to the direction of reclamation to increase supply. In 2007 One of Dubai’s leading private property developers has predicted that demand for homes and offices in Dubai will continue to exceed supply for the next few years (Mehdi, 2007), but Dubai's property market experienced a major fall in 2008 and 2009 as a result of the worldwide economic downturn following the Financial crisis 2007-2010. However, it was predicted that the release of the new reclamation space would lead to a decrease in demand, but after the first release of units, which it was 25,000 units, they were all delivered and absorbed into the market without any affect on demand (Mehdi). Moreover, the leader of UAE mentioned “The government is building a city for five million people whereas today we have fewer than two.” Of course that led to oversupply, which limited mortgage availability and rising interest rate (Property News).
Action should be taken and improvement should be made, otherwise ‘it is unlikely that developers will deleverage quickly enough to repay the upcoming 2011/2012 maturities from internal resources (Property News). Therefore, Dubai’s leader is trying to find the solution to achieve a balance between supply and demand. The Dubai government is doing all it can to meet the demand. It is making more land available for development and it is controlling the cost of raw materials such as cement. It’s attracting new developers and new construction companies whilst also providing facilities and the necessary legislation to protect investors, developers, and home buyers (Property News). As we seen that Dubai did not only meet the demand, but also it oversupplied, so they are now in the process and hope that demand will continue outweigh supply.
In creating a market for space, you have to meet highest and best use, situs, and economic fundamentals before even start thinking about the reclamation project; Dubi's leaders have definitely thought about these important points. “The palm Island”, the name of the reclamation project, is a major commercial and residential foundations being constructed. It is constructed of three islands, each of which is topped with a crescent, and will have a large number of residential, leisure and entertainment centers. The Palm Island will add 520 Km of beaches to the city of Dubai. Two of the Islands are about 100 million cubic meters of rocks and sands; the third Island is about one billion cubic meters. Among the three islands there will be over 100 luxury hotels, exclusive residential beach side villas and apartments, marinas, water theme parks, restaurants, shopping malls, sports facilities and health spas. With all these pre-planned and even most of them pre-leased projects, the Palm Island will satisfy the need of market for space.
Despite all the planning and predictions of this new project, I still believe that the notion of any real estate market is fluctuation. It is a really smart move to oversupply at the meantime when there is almost a guarantee of population growth in the future, as A Dubai’s spokesman argues that with the expected doubling of Dubai’s population in five to eight years, massive demand for property will continue (Mehdi). However that does not change the fact the real estate market is always unpredictable.
In conclusion, Real estate is a risky business, but it would pay off as big as its risk. When I first read about Reclamation, I was amazed how developers and entrepreneurs have reached to the level of thinking not to only create and find a new space, but actually building one in the sea. Of course it will require larger capital, more planning and studies, and more risk, but at the end it would produce a beautiful outcome and achievement.
Work Cited

Amjad, Mehdi. "Demand for Dubai Real Estate to Continue to Exceed Supply for a Few Years, Says Leading Dubai Developer, Industries, Press Release - Maktoob News." Middle East Business, Politics, Society, Markets and Sports News - Maktoob News. Aug.-Sept. 2007. Web. 23 Mar. 2011. .
"Real Estate Market in Dubai Likely to Be under Pressure until 2012/2013, Ratings Agency Predicts | Middle East | News." Property News | Real Estate News | Property Wire. June-July 2010. Web. 23 Mar. 2011. .

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