How's Business in Dubai? Interview #4. News from the Real Estate Market

Thanks for having me. Let me share my screen right away, because we have a presentation that we showed our clients, and I'll walk you through it too.

Briefly about us. We're Colife, and I'm the co-founder. We manage real estate in different countries, including Dubai. We manage and we sell — that's our profile. We currently have more than 500 properties under management in Dubai, so what I'll be sharing today is essentially a distillation of insider information — of the reality we feel with our own hands and feet on the ground: how rentals are doing today, and how the sales market has felt and feels now. We do sales as well, mostly focused on turnkey investment property: you buy with us, you get the apartment, then you rent it out, and you have one contractor, a single point of contact that is accountable to you for everything. So we have quite a lot of our own analytics, which I'll share today.

I think it changed for everyone, because obviously we were all expecting a good season in March. And obviously it was very painful. We saw that tourism, for example, practically died in Dubai in March. There's a very telling statistic, I'll show it now. This is the data on flights into Dubai — how many flights Dubai airport handles per day. Normally it's around two thousand flights a day.

After the Iranian conflict began, for the first three days we saw a complete halt of all flights. And then in March we saw 500 flights a day instead of 2,000. If we talk about the current situation — it's the end of June now — we've already recovered to 70% of what it was. And that's very good: we can see that recovery is under way, and I think we'll get there. All the schools, offices, everything is operating as normal, Dubai has traffic jams again, the fountains are running, events are taking place, and so on. So we're already seeing a pretty decent recovery after this situation.

Since we have two companies, one for rentals and one for sales, I'll talk about both. Let's start with how we handled rentals, and then I'll cover sales.

In March we recorded the highest vacancy level in our entire history — that is, the share of vacant units. We got to almost 36%, which is a huge amount for us. That was primarily in holiday homes: we have holiday homes, and we have the real estate business, which rents out housing long-term. So we recorded 36% vacancy, which is a lot for us. The guys who specialise more in short-term, daily rentals had 80% vacancy. Now we've levelled out, and we're at around 5% vacancy at the moment, so the market has recovered. But obviously March was very, very painful.

Take the number of leads, for example: again, March was a slump, even though it should have been a good seasonal month. And we see that already in April the number of leads started to recover. That's rentals. The same goes for the average ticket. It fell quite sharply in March — we see a sharp drop, almost by half. And now, even despite the summer, it has started to grow and recover relative to March–April. So we're already seeing recovery.

What else we did: we moved many of our holiday homes contracts to long-term contracts. And by the way, there's a very interesting thing here — this is one moment where the Dubai government helped us. Owners don't want to sign long-term contracts, especially in a period like March–April, because if you lock in a price, you can't raise it later: there's a regulated cap on how much you can raise it, and that's it. So, on the DLD website, where contracts are registered, an option appeared to enter the normal price and give a discount from it. That had never existed before. DLD reacted quickly and made it possible to lock in a good, normal contract price and give a discount from it, so that a year later, when there's a full recovery, you can raise the price not from the low figure but from the normal one. In my view, this is one of the indicators that we actually received quite a lot of support.

You could say it's the same for us. In fact, I think every business in Dubai has accepted that this year summer started in March. We were all like: okay, looks like summer started in March. But even so, if we look at the average ticket, our average ticket in summer, in May, in June — well, June isn't on this chart — but in June it's higher than, say, in April. So clearly we're already rolling back to a more or less normal situation.

Yes, compared to last year we are of course running lower, but if we look at the end of this chart, we see that prices have caught up with last year's. So that's it — rental prices are back to normal levels.

Look, obviously March was very hard, but honestly, Dubai handled all of this very well, given that the tourist flow practically stopped and so on. But interestingly, even though the tourist flow stopped, business activity and contracts with people who live in Dubai continued for us. And that's interesting. Obviously, like everyone, we're waiting for recovery in the autumn. The conflict is, after all, gradually... I'm no expert in politics, but it seems that the conflict is gradually calming down, and life is getting back on track too.

By the way, since we're on rentals: we identified the top 3 performing districts — the ones that dipped the least by our metrics. JLT, for example, dipped the least. Occupancy there is very high right now, 96% at the moment. We have 209 units there, so it's a meaningful sample, and we can see that it's performing well. City Walk is also performing well, but we don't have many units there. And Business Bay is also doing great — so, all the business districts. In Business Bay we have 135 units, and occupancy is also very good: 92% on average right now, despite the summer.

Look, we specialise in investment property, but the kind that gets rented out. Since we manage 500 apartments in Dubai, we know what is actually worth buying. As you probably know very well, two neighbouring buildings can be completely different, because one building's management is better and the other's is worse, and a great deal depends on that. And since we know specific apartments and specific towers from the ground — we have many units in each tower — we look not only at the statistics the Land Department gives us, but also at how units in that tower actually perform, how the management company actually runs the building, which way the view should actually face, and so on.

That's why we're very good at selecting properties, including on the secondary market. We focus a lot on the secondary market because it's significantly cheaper, for example, and more attractive as an investment than off-plan. And the secondary market also appreciates better than off-plan, simply because developers often build into their prices an "interest-free" instalment plan that isn't really interest-free — it's added on top — plus huge broker commissions and so on. Because of that, secondary properties are often the better deal. So yes, these are purchase recommendations: which districts are performing, and kept performing, even in a situation like this.

Yes, not the tourist districts.

I've covered rentals. I should probably also tell you what happened with sales.

The start of the conflict versus now. It was actually a very interesting situation, because at the very start of the conflict I was really surprised that we started getting lots of leads — but for buying. Even acquaintances and clients of ours who had been thinking for a long time, hesitating for ages. We got a pile of requests like, "Guys, what have you got, is anyone selling something at a discount?" — and at first there were no requests at all to sell something at a distressed price, you see? Lots of people wanted to buy, and almost nobody wanted to sell.

In reality, of course, there were still distressed deals in the end, but quite few of them. And distress means minus 10–15%. Such properties went very quickly. They were mostly sold by people who urgently needed money. If a person had some urgency, they sold at a 10–15% discount. Very quickly, literally within three days, those properties were gone. Nothing like that stayed on the market for long. And some people were lucky enough to grab great properties from those who panicked or needed money very urgently.

But if we look at the overall statistics, on average the price of properties in Dubai fell by 1%. The average price fell by 1%, even though the number of transactions dropped quite significantly — by 45%. So the number of transactions was down 45%, but the price practically didn't change. 1% of the value is insignificant. And now there's no one selling at a discount any more. That's all over, there are no discounted prices. You can find good prices and good properties, but not with a 10–15% discount, as you could in March–April.

I think this one is rentals. Actually, I've run out of slides. I just decided to show you the results we recently presented to our clients on exactly this — how the situation developed.

Of course we optimised very heavily, because the situation was unclear, worrying and so on. We did quite a big optimisation, and most likely we'll see a normal recovery, including in our own company, only in the autumn.

We look at the outlook quite positively. We believe everything will be fine and that we'll get to good numbers. We saw how well Dubai as a city, the Dubai government, handled this whole situation: they came out with news, gave updates, explained what they were doing, introduced support measures, and so on. So I'm really very pleased with how the Dubai government responded. I think it's a great example.

You know, I have this thesis: I trust companies with good management. Say you're deciding which shares to buy. You think: if this company has good management, then whatever crap happens, the guys will cope in the end anyway, because the company is well run. And Dubai is a city with good management, it seems to me. The way they reacted and conducted themselves during this crisis is, I think, also an example of good management, of good work with the information space, and so on.

Well done to them, and well done to us too. Good luck to Dubai business!

Thank you, Nastia, for inviting me.