Confessions of a Real Estate Agent May 2018
The world is on the move.
Today, an estimated 258 million international migrants are living outside their country of birth. While some of this migration is due to warfare and famine, a more substantial and quieter movement continues to dramatically change our world – the great migration of humanity from the rural countryside into the cities.
Beginning shortly after the onset of the Industrial Revolution in mid-18th Century England, rural-urban drift has caused the world’s urban population to balloon to over 4 billion today. Because of the impact of steam technology, farming became much more efficient, the surplus production of food permitting the drift of workers into the cities as demand for labour in the increasing numbers of factories grew exponentially over the next 100 years.
The MENA region experienced the highest rate of population growth of any region in the world over the past century. Improvements in human survival, particularly during the second half of the 20th century, has led to rapid population growth in MENA and other less developed regions. Why? The introduction of modern medical services and public health interventions, such as antibiotics, immunization, clean water supplies, and sanitation, caused death rates to drop rapidly in the developing world after 1950, while the decline in birth rates lagged behind, resulting in high rates of natural increase (the surplus of births over deaths).
Another phenomenon has appeared in recent decades - the emergence of a truly global middle class. By 2030, it will more than double in size, from 2 billion today to 4.9 billion. Brookings Institution scholar Homi Kharas estimates that the European and American middle classes will shrink from 50 percent of the total to just 22 percent. In contrast, rapid growth in China, India, Indonesia, Vietnam, Thailand, and Malaysia will cause Asia’s share of the new middle to more than double from its current 30%. By 2030, Asia will host 64% of the global middle class and account for over 40% of global middle-class consumption.
What has any of this to do with real estate in Dubai?
In 2003 when I arrived here, the population of Dubai was just over one million. A few months’ ago, we crossed the three million mark, and we are now on track to reach five million by 2027.
Dubai has always attracted people to its shores, mostly from countries sharing the Arabian Gulf and from various parts of South Asia. Today, this attraction continues, producing a modern migration, not from the immediate locality but from almost every part of the globe. Instead of a rural-urban drift, Dubai is experiencing the benefits of a global drift of an entire range of workers from road sweepers to brain surgeons, many of them representing the increasingly affluent and discerning global middle class.
With these people now arriving seeking accommodation in the city, rents have begun to fall in the areas with inferior infrastructure and specifically in the low-grade buildings that are the result of a rapid period of construction at the start of Dubai’s real estate boom in the early 2000s.
The increased demand for well-designed, space-efficient apartments and villas has led to many people fleeing low-rent/ low-quality areas in favour of high-quality buildings constructed by the city’s best developers.
Cluttons, a major Dubai-based real estate company, believes that “newly completed rental properties will command the attention of tenants, while older and perhaps tired more secondary property registers rent falls. This flight-to-quality phenomenon will likely result in the creation of a very distinctive two-tiered market.”
Location still rules in the main but it’s the quality of the design, the standard of facilities within the property and in the community, the level of finishing, and the developer’s reputation for managing and maintaining their properties and your assets that are most important determining factors for long-term gain and return.
Buyers and tenants now want to know how many amenities there are in the development. Are there cafes and restaurants nearby? Is there a park and children’s play area? What else is on the doorstep? These are all questions a buyer and tenant will ask and will form part of the decision-making process.
In summary, inferior build quality, a lack of amenities, and poor use of space will drive both buyers and tenants towards those more attractive developments in the city because nowadays, buyers and tenants are no longer forced to settle because of a lack of choice.