Each January, Deloitte’s Middle East Real Estate & Construction team produces a report that sets out a series of real estate predications for the coming year, Forbes Middle East reports.
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Prediction #1: Dubai will consolidate its position as a global city, which will present both opportunities and challenges. Dubai has developed a business friendly legal and regulatory environment. The Heritage Foundation’s 2017 Index of Economic Freedom ranked the U.A.E. as the 8th most free economy in the world, calling out efforts to “strengthen the business climate, boost investment and foster the emergence of a more vibrant and diverse private sector.” This has allowed Dubai to build globally competitive economic sectors including finance, logistics, maritime and tourism. The growth in these sectors in Dubai will continue to drive demand across the real estate market, including office, residential, retail, hospitality, industrial and logistics uses.
Dubai is now more connected than ever to the global economy. Although this presents a number of opportunities for Dubai’s real estate market, there are also challenges that will need to be managed in 2018. According to the World Bank, these challenges include increasing economic protectionism, heightened geopolitical uncertainty and the possibility of financial market turbulence.
Prediction #2: Dubai’s development finance market will diversify. Alternative sources of development finance, such as Export Credit Agencies (ECAs), will become more prevalent in Dubai. ECAs are government bodies that provide government-backed loans, guarantees and insurance to businesses operating in foreign markets. UK Export Finance (UKEF) is a recent example in Dubai, which recently financed the UK contractor Carillion on a major construction contract for the Dubai World Trade Center.
Prediction #3: Dubai will lead the way in certain disruptive technologies, such as 3D printing. Dubai has set the target that all new buildings will be 25% 3D printed by 2025. This target, set by the Dubai Future Foundation’s Dubai 3D Printing Strategy, aims to substantively reduce the cost of both construction materials and labour, in addition to reducing the amount of time taken to construct buildings. Dubai’s 3D printing target, administered by the Dubai Municipality, will be introduced on a sliding scale basis, beginning in 2019 with a requirement that all new buildings are 2% 3D printed.
Prediction #4: The introduction of VAT will have a wide-ranging impact on Dubai’s real estate market. For example, it has become more common in Dubai for landlords to offer rent-free periods and other incentives to both attract and retain retail, office and industrial tenants. From 1st January 2018, lease incentives could trigger a VAT liability if they are deemed to have been offered in return for an inducement, such as a contribution towards capital fit out works. VAT may also represent a cashflow concern for some of Dubai’s developers. Margins are typically low in the real estate industry. The introduction of VAT on the purchase of construction materials and professional services may cause cash flow pressures and impact working capital for some of Dubai’s developers.
Finally, Dubai’s hotel operators may face a complex process to establish VAT across multiple revenue streams. For invoice and accounting purposes, hotel operators in Dubai will need to treat the VAT implications of each revenue stream separately. These revenue streams typically comprise room revenue, F&B revenue, telecommunications revenue and conference and events revenue. 2018 will offer both opportunities and challenges for Dubai’s real estate market. By many measures, Dubai has achieved global city status and developed internationally competitive sectors in areas as diverse as finance, logistics, maritime and tourism. This will continue to drive demand. The emirate’s connectivity to the global economy also poses challenges, in a global economic context that includes increasing economic protectionism and geopolitical uncertainty.