Burj Khalifa Opening ‘Unlikely
to Bring Down Property Prices’

The impact of the opening of the world’s tallest tower is also expected to be gradual with little immediate and sustainable effect on the sale prices and rents of residential and commercial units elsewhere in Dubai, said Jesse Downs, Director Research & Advisory Services of Landmark Advisory, a Dubai-based property consultancy.

“The average owner of a Burj Khalifa residential unit is more likely withhold their unit from the market. This is usually because they are pursuing a capital appreciation investment strategy and/or use the it as a second home,” said Downs. This will keep sales inventory low and sales prices stable. Leasing inventory may be relatively controlled, it is more prone to fluctuations. This is also due to the overall supply and demand dynamics of commercial space in Dubai, she said.

When property prices were at their peak some apartments in the Burj were selling for more than Dh6,900 per square foot. About 90 per cent of units in Burj Khalifa have already been sold.

While some market watchers said those units could be worth less than half that, quite a few brokers believe that prices in the skyscraper had held up amid the 50 per cent crash across the rest of the city.

However, there may be short-run dip in rents after the building has been fully handed over. “This is because landlords are typically pushed to reduce rents when occupancies are low as tenants have significant bargaining power and prefer to move into a well occupied building as opposed to a nearly empty building.”

When the Burj Views project in Downtown Burj area was handed over in the summer of 2009 a dip rents was felt. Originally the two bedroom apartments (excluding the podium apartments) were renting for approximately Dh100,000 per year. Now that has increased by approximately 20 per cent in the space of six months, said Downs.

“However, the unfolding of rents in the Burj Khalifa really depends on the conversation rate of supply to inventory in the building itself.”

On the impact of Burj Khalifa’s opening on rents and sale price of residential and commercial units of surrounding areas, Downs said, “while we expect high vacancy rates, especially in the first year, the imminent handover will have a positive impact on confidence by simply showing progress.”

More interestingly, Burj Khalifa’s opening also increases agglomeration economies, thus moving the market towards the creation of one primary Central Business District, Downs pointed out. “The launch of Burj Khalifa could not have come at a better time. This is a clear vindication of the hard work and efforts of Dubai and the UAE. The vision of our leaders has always remained clear and consistent, said Dr. B.R. Shetty, Managing Director of NMC Group.

Burj Dubai is an iconic structure that embodies the spirit of Dubai —‘nothing is impossible.’ The opening of the tower will put to rest all the doubts expressed by the global media. It will give the economy a fresh impetus by attracting a new wave of tourism. It marks the start of a new decade on a positive note —a decade that will drive Dubai to newer heights of success and prosperity,” said Deepak Babani, Chief Executive Officer of Eros Group.

Based on the anticipated supply pipeline for this year, Downs said average sale prices and average rents would continue to decline into 2010. “However, it’s important to note that high quality, well designed and executed properties in key locations and/or in well designed master developments will perform relatively well. We expect that select residential developments will experience sale price stabilization and rent appreciation in 2010.”

The commercial market is facing an even more dramatic supply glut. “Although we haven’t seen this reflected in price movements recently, we do expect prices to adjust again in 2010,” said Downs. According to Landmark, property prices and rents largely stabilised over the last few months in Dubai with slight price rises in more sought after areas balancing out further declines in less desirable locations.

Apartment sale prices on the Palm Jumeirah climbed 7 per cent in the last three months, while lower quality developments such as International City saw prices slide 10 per cent.

Rent rates for units in Downturn Burj Dubai rose 13 per cent in the past two months and rates for units in Jumeirah Lake Towers increased 9 per cent, while International City saw rates slump 12 per cent.

· issacjohn@khaleejtimetimes.com