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How Indians have become the largest non-Arab investors in Dubai’s real estate

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Dubai: The Burj Khalifa’s record as the world’s tallest building is well known. Not so well known is its connection with India. Indians own the most number of apartments in the building, which has more than 160 stories and a height of over 828 metres. BR Shetty, an Indian industrialist based in the United Arab Emirates (UAE), paid United Arab Emirates dirham (AED) 45 million in 2005 to buy the entire 100th floor. BK Modi, a Singaporebased businessman, Rizwan Sajan, chairman of real estate company Danube Group, and Bollywood actor Shilpa Shetty, to name but three, are other Indians or people of Indian origin who own apartments in Burj Khalifa.

Last year, building materials supplier, Danube Group launched a project to develop 175 townhouses at Al Furjan — a residential hub in Dubai — by 2016. The three- and four-bedroom houses, with a built-up area of 2,500-3,000 square feet, have prices starting at AED 2.5 million (1 AED = Rs 17.01). The entire project was sold out on the very first day. The largest number of buyers was again that of Indians. Indians have long been flocking to the UAE for jobs. They form the largest number of expatriates in the Gulf (in Dubai alone, 30% of the population are Indians). But in recent years, they have also — as the cases of Burj Khalifa and Danube illustrate — been buying property by the hordes in Dubai, one of the seven federates of UAE.

Destination Dubai

Indians now are the largest non-Arab investors in Dubai real estate in terms of value and volumes, according to Dubai Government Land Department (see India Shining). They have invested AED 44 billion in Dubai’s real estate market in the last three years, including AED 18.1 billion in 2014, according to Dubai Land Department data. “Many Indians consider Dubai as their second home. Property prices in Dubai are cheaper than the corresponding places in India or other international cities,” said Rizwan Sajan, chairman of Danube Group. The average price of an apartment in prime locations in Mumbai is Rs 6 crore whereas the corresponding price for a posh apartment or villa in Dubai is AED 2 million to AED 3 million, or Rs 3.4 crore to Rs 5.1 crore.

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Even in an upscale location like Dubai Marina, whose expansive waterfront is packed with idling yachts, property prices are cheaper than in many Indian cities. Or,for that matter, London. Properties in London cost three to four times more than in Dubai. It is no wonder then that a number of developers in India such as Sobha Group and Danube are developing prime property in Downtown Dubai and Dubai Studio City.

Most of the buyers are typically Indians. “70% of the investors in our first two projects are working Asian expatriates, especially from India and Pakistan, because they saw a good investment opportunity,” said Sajan. Indians in Dubai, particularly from the middle class, buy property for pretty much the same reason as most people working in places far from home do: it makes sense to own a property than pay rent for one. The rents in Dubai pinch: ranging from AED 80,000 to AED 1,00,000 a year for a one-bedroom apartment in some of the premium properties, rising by up to 8% a year. Buying makes sense: a decent, spacious property in an upscale locality typically costs about AED 1 million.

Apartments, Please!

A recent survey by Bayut.com, an online property portal, showed that the majority of Indians living in Dubai planned to buy an apartment rather than a villa or a townhouse. About 60.8% of Indians surveyed in the study said they have been looking to buy a house for the past three months. Of this lot, 82.86% said they are interested in buying apartments. Only 13.71% of Indians showed an interest in buying villas. The search for townhouses was limited to just 1.71% Indians.

At Burj Khalifa, the buyers are not just the affluent. In fact, the number of investors buying apartments through home loans in the tower had doubled in the first nine months of 2014 compared to the same period in 2013, according to authorities. Even so, the most sought-after localities happen to be the toniest in Dubai — Dubai Marina, Downtown Dubai and Jumeirah Lake Towers. According to Luxhabitat, a Dubai-based real estate brokerage firm, the maximum number of properties above AED 5 million were sold in Downtown Dubai followed by Dubai Marina and Palm Jumeirah.
An Indian businessman in the UAE who owns 27 residences in Burj Khalifa said Indians are investing in the UAE because it is very difficult to invest or do business in India, especially in Kerala. “There are trade union problems, shortage of labour and even restrictions on using land. So instead of attracting trouble by investing in India, we find peace of mind and reasonable return of investments in the UAE,” he said, requesting anonymity.

Non-resident Indian (NRI) businessmen consider the UAE their second home, thanks to a tax-free environment, growing rental yields and appreciation of capital. Dubai is seen as an oasis of peace and prosperity in a desert of bloodshed and violence that is the rest of the Middle East. Many NRIs have become rich by prudently investing in the Dubai property market.

Wild Swings

But the market has not always been benign. It has undergone a roller-coaster ride in the last one decade, hitting the sweet spot after freehold properties were declared and crashing when the emirate was sunk by billions of dollars of debt accumulated by state-run businesses. But now, all that is history, given the host of stunning construction projects under development. Authorities are on an overdrive to regain Dubai’s exalted status as a haven of big businesses. Millions of tourists and business visitors throng the city every year; their numbers are projected to skyrocket during the Expo 2020, a much-hyped trade convention.

Nowhere is the boom more palpable than in real estate. The average selling price for registered transactions recorded with Dubai Land Department rose to AED 3,650 per square feet in the first nine months of 2014 compared with AED 3,500 a square feet a year ago, according to Reidin.com, an online portal. The highest recorded transaction was AED 5,285 per square feet.

Riyaz Korath, chief executive officer of Korath Holdings, said investment in the UAE property market is still a good bet for investors with a long-term perspective. The time is ripe now to invest because prices are reasonable compared with the expected appreciation in 2020 when prices may peak because Dubai is well on course to become a global metropolis such as Paris, London and New York, according to him. Korath said he has invested in almost every new property in Dubai since 2007 and his capital has appreciated by 50%.

Indian investments in the Dubai real estate market also received a fillip recently after that the Reserve Bank of India increased the amount Indians can invest or spend abroad in foreign exchange without seeking its permission. India’s central bank has allowed Indians to buy property abroad, hold shares or debt instruments, or any other assets or purchase gifts up to a limit of $2,50,000 (AED 9,17,500) per person per year under the Liberalised Remittance Scheme. The earlier limit under the scheme was $2,00,000 but in 2013 it was reduced to $75,000 as the rupee slumped. It was set back at $1,25,000 in June 2014.

Many affluent Indians who prefer betting on real estate have scrambled to Dubai after the rule was relaxed. UKbased Knight Frank’s Wealth Report 2015 states that $1 million (AED 3.67 million) can get an investor 145 square metres of prime property in Dubai and only 96 square metres in Mumbai.
Mahender Singh, managing director, SPF Realty, said Indians used to heavily invest in the Dubai property market until June-July 2014 and those who have a long-term perspective on Dubai continue to invest. Though many have turned very cautious now, what is driving the investments is the severe drop in real estate prices, he said. “People are expecting the real estate prices to peak during the Expo 2020,” he said.

Cautious Investments

The investment opportunity has prompted Indian corporates and industrialists to park their surplus funds in the Dubai property market. Recently, two posh hotels in Dubai were acquired by Indian investors. A group of Indian investors, who preferred to remain anonymous, bought 125 villas in ‘Millennium Square’ residential project in the heart of Dubai.

That is not to say Indians are loosening their purse strings blindly. Some investors have turned cautious because memories of the wild swings in the market are still fresh. Sudden changes in the oil market and symptoms of uncertainty are visible in the property market as well. Many people are watching the market closely, according to real estate analysts. The government prefers investments from big business to ‘small investors’ (those who take bank loans to purchase property). The expatriate population is growing by the day and property prices are on the ascent. Given their big plans to make Expo 2020 a grand success, authorities don’t want a repetition of the 2008-2009 financial crisis. The bubble of 2008 is also fresh in the minds of many investors who landed in a financial pickle after diverting funds to buy property.

A real estate analyst who did not want to be named said it is true that some bulk deals are reported by property developers, but the authenticity of such claims needs to be taken with a pinch of salt. “Sometimes, the bulk buyers are not genuine buyers but a group of investors with deep pockets who book one or two floors of the project and later resell for a profit. The much publicised announcement of celebrity investments too need to be scrutinised because they are just endorsements used to attract other investors to a property,” he said.