UAE_Real_Estate_-_12_Sep_08_1443 by linzhengnd

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									 SECTOR
 Research




12 September 2008                           UAE Real Estate
“Reaching New Heights”

 We maintain a positive outlook for
 the overall UAE real estate sector in
 2008-09, fundamentally driven by
 Abu     Dhabi    and     its   huge
 demand-supply imbalance

 Dubai real estate would experience a
 correction in the prices of residential
 developments in 2010 whereas the
 commercial segment will continue to
 boom, offsetting the fall in residential
 prices to some extent

 The UAE’s real estate sector will
 continue to flourish amidst stubbornly
 high inflation rates as property is
 used as a hedge against inflation




 KFH Research Ltd
 KDN PP15024/3/2009 (021451)
Contents

           UAE Real Estate Outlook                                         3

           Demand Drivers for Real Estate                                  4

           Challenges facing the Real Estate Sector                       13

           UAE Real Estate vs.GCC Real Estate                             14




           Emirate-Specific Outlook

           Dubai                                                          15

           Abu Dhabi                                                      27

           Ras Al Khaimah                                                 33

           Fujairah                                                       35

           Ajman                                                          36

           Sharjah                                                        38

           Umm Al Qaiwain                                                 39


           Research Team
           Baljeet Grewal
           Managing Director & Group Chief Economist
           Tel: 603 – 20557877
           baljeet.kaur@kfh.com.my

           Tursina Yaacob                              Mohd Arsad Thinoon
           tursina.yaacob@kfh.com.my                   arsad.thinoon@kfh.com.my

           Waina Leong                                 Imran Ibrahim
           waina.leong@kfh.com.my                      Imran.ibrahim@kfh.com.my

           Noor Ashikin Ismail                         Tabassum Khwaja
           noorashikin.ismail@kfh.com.my               tabassum.khwaja@kfh.com.my

           Kuhan Balasegaram                           Meeta Anand
           kuhan.balasegaram@kfh.com.my                meeta@kfh.com.my

           Darshini M. Nathan                          Mashkurah Abdul Latif
           darshini.mahendra@kfh.com.my                mashkurah.latif@kfh.com.my

           Mohd Izhar Allaudin
           mohd.izhar@kfh.com.my
                                                                        Sec
                                                                                tor
                                                                                        Foc
                                                                12 September 2008                   us
                                                      UAE Real Estate

UAE Real Estate
“Reaching New Heights”
UAE’s real estate market is enjoying an unprecedented boom and is considered the
most active of all real estate markets in the Gulf Cooperation Council (GCC) region. The
real estate and business services sector in nominal terms continues to grow, recording
a CAGR of 20% during 2003 - 2007. In 2007, the real estate sector showed a strong
growth of 21% y-o-y, with the realty and construction sectors contributing 8% of GDP
or USD15.19bln. The sector was buoyed by increasing investments in infrastructure,
due to the country being positioned as an attractive tourist destination in addition to the
increase in residential and non-residential units. Although Dubai is expected to witness
a softening in the prices of certain developments and is forecast to gradually slide into
a correction phase before consolidating, we maintain a positive outlook for the overall
UAE real estate sector in 2008-09, fundamentally driven by Abu Dhabi and its huge
demand-supply imbalance, in combination with the following factors:

•  Solid macroeconomic foundation with GDP growth projection of 7.8% in 2008, on
   the back of sustained oil earnings and robust public infrastructure investments.
•	 Continuous	economic	diversification,	coupled	with	huge	fiscal	surplus,	over	the	
   years has led to huge public expenditure on real estate projects. To-date, total
   existing and planned real estate projects are estimated at USD62tln.
• Due to the dollar-dirham peg, the declining US dollar has made UAE property
   cheaper for Europeans and Asians, both of which account for approx. 75% of
   UAE’s real estate investors.
•	 Stubbornly	 high	 inflation	 rates	 (2008F-12.3%)	 will	 make	 the	 sector	 flourish	 as	
   property	is	used	 as	a	hedge	 against	 inflation.	As	rising	 rental	costs	 remain	 the	
   primary	catalyst	of	the	climbing	inflation	rate,	the	trade	off	between	renting	and	
   owning becomes more skewed towards owning property.
• UAE has one of the highest population growth rates in the world. This, coupled
   with	 the	 influx	 of	 expatriates,	 has	 led	 to	 an	 increase	 in	 demand	 for	 residential	
   units.
• Rising income levels in the UAE also account for the strong demand for real
   estate, which is currently at the low end of the range for real estate prices among
   countries of similar per capita income levels. UAE’s average annual per capita
   GDP is estimated at USD45,000.
• Abundant liquidity due to the relatively low impact of the subprime crisis and easy
   mortgage availability has kept demand for real estate high.
• Setting up of regulatory bodies and the introduction of investor-friendly foreign
   ownership	laws	in	the	country	have	boosted	investor	confidence	in	the	sector.

             Growth in real estate transaction volumes in the GCC in 2007
        70
        60
        50
        40
    %




        30
        20
        10
         0
               UAE            Oman        Qatar        Saudi         Kuwait        Bahrain
                                                       Arabia
Source: Global Property Guide, KFH

    REFER TO DISCLAIMER & DISCLOSURE AT THE END OF THIS PUBLICATION
UAE Real Estate

                                The dilemma for investors in the UAE real estate market is to assess the “true”
                                demand for future housing supply, and also the reliability of planned supply.
                                Planned supply of housing units is not expected to exceed demand for the next
                                2 years. We estimate that unit supply will be approximately 180,000 units for
                                the three year period between 2008 and the end of 2010. However, in 2007, only
                                approx. 30% of planned units were actually delivered, as the industry was hit by
                                several production constraints. Most notably, contractors were constrained by
                                an extremely tight labour market compounded by a new labour law that required
                                much of the existing labour force to return home and reapply for residence visas
                                as part of the amnesty programme. As these issues have been resolved, we
                                should see a gradual improvement in contractors meeting delivery schedules.

                                Currently, demand for real estate in the UAE is greater than the available supply.
                                There is still a shortage of units in the residential and commercial segments due to the
                                unprecedented economic boom, high employment growth, regularity at which foreign
                                companies	are	setting	up	base	in	the	country,	and	huge	inflow	of	expatriates.	Dubai	
                                has by far been the largest emirate in terms of real estate activity. This is followed by
                                Abu Dhabi, which is currently engaged in real estate development projects estimated
                                at USD136.2bln and has also witnessed the highest escalation in rents and property
                                prices.

                                Although, the Dubai property market is crowded with several mega projects in the
                                pipeline, signaling an expected oversupply situation, most of the projects are still under
                                construction. Moreover constant delays in the delivery of new property has fuelled the
                                demand for available property, and hence led to greater appreciation in rents and
                                prices.	There	is	a	greater	supply	deficit	in	Abu	Dhabi,	ensuring	huge	opportunities	for	
                                developers.

                                The pent-up demand would require enormous supply in order to be satiated. This
                                latent demand offers more security to developers rather than external demand, which
                                to a large extent is the case in Dubai. The relatively immature and unexploited real
                                estate markets of other emirates like Ajman, Ras al Khaima and Fujairah are also set
                                to provide new avenues for investors, thus making the UAE a lucrative market in the
                                years to come. Nevertheless, the UAE real estate sector may begin to face the risk of
                                oversupply of certain types of developments (Dubai in 2010 and Abu Dhabi in 2013)
                                given the aggressive capacity expansion plans in recent years.

                                Demand Drivers for Real Estate
                                1) Solid macroeconomic foundation
The UAE is expected to          The UAE is expected to maintain its solid track record for economic growth in 2008,
maintain solid economic         with real GDP growth forecast at 7.8% on the back of the surge in oil prices in the past
growth in 2008, with real GDP   few years and strong regional liquidity. The downturn in the US is not likely to have
growth forecast at 7.8%
                                a	 significant	 impact	 on	 the	 UAE,	 as	 growth	 continues	 to	 be	 underpinned	 by	 robust	
                                government spending and new private sector investments in the non-oil sectors.
                                Furthermore, private consumption growth will remain strong given the continued
                                expatriate	population	growth	in	the	country	and	robust	consumer	confidence.	Moving	
                                forward,	 the	 non-oil	 sectors	 which	 include	 financial	 services,	 tourism,	 industry	 and	
                                real estate will continue to drive growth in the UAE. According to the UAE Ministry of
                                Economy, the biggest contributor to the UAE’s GDP is the fast emerging real estate
                                sector. In 2007, the sector contributed 8% to the country’s GDP.




                                                                                                                         4
UAE Real Estate

                                                                      UAE’s Real GDP Growth Trend
                                            14
                                            12
                                            10




                                 % Change
                                             8
                                             6
                                             4
                                             2
                                             0
                                                     2001      2002          2003      2004          2005    2006         2007     2008F
                              Source: Central Bank of UAE, KFH Estimates


                                                            UAE’s Real Estate Sector Contribution to GDP
                                             9



                                             8
                                  %




                                             7



                                             6
                                                      2004              2005                  2006            2007               2008F
                              Source: Central Bank of UAE, KFH Estimates


                              2) Public expenditure and huge fiscal surplus
A significant proportion of   On	the	fiscal	front,	we	expect	the	budget	surplus	in	2008	to	grow	higher	to	USD54.5bln	
the government surplus is     or 28.0% of GDP on the back of higher oil revenues and likely controls on government
invested in real estate       spending	to	reduce	inflationary	pressures	on	the	economy.	The	fiscal	balance	in	2007	
                              was healthy at USD49.9bln or 27.6% of GDP, on the back of UAE’s low levels of public
                              debt and higher revenues generated from the oil and gas sector. In 2007 approximately
                              USD 0.4bln was allocated for infrastructure development while USD0.3bln was set
                              aside for projects including real estate. As most of the development in real estate is
                              undertaken	by	government-owned	companies,	a	significant	portion	of	these	surplus	
                              funds is invested in government-sponsored real estate projects and infrastructure.



                                                                 Fiscal Position Trend (2003-2008F)
                                            60,000                                                                                   35

                                            50,000                                                                                   30
                                                                                                                                     25
                                            40,000
                                USD mln




                                                                                                                                     20
                                                                                                                                          %




                                            30,000
                                                                                                                                     15
                                            20,000
                                                                                                                                     10
                                            10,000                                                                                   5
                                                 0                                                                                   0
                                                       2003           2004          2005         2006         2007         2008F
                                                                             Fiscal balance          Share of GDP (RHS)
                              Source: Central Bank of UAE, IMF, KFH




                                                                                                                                         5
UAE Real Estate

                               3) Dollar-dirham peg
The dirham-dollar peg has      On	 the	 currency	 front,	 the	 UAE	 dirham	 has	 been	 fixed	 against	 the	 US	 dollar	 for	
made UAE property cheaper      decades. However, the dollar-dirham peg restricts the ability of the central bank to
for Europeans and Asians       influence	interest	rates,	inflation	and	the	real	value	of	its	currency,	as	it	has	to	mirror	
investors
                               the US monetary policy to protect the dirham from market speculation. Although
                               the declining US dollar has reduced the dirham’s purchasing power against other
                               currencies,	causing	an	increase	in	local	inflation	rates	and	increasing	costs	of	imports,	
                               it had made UAE property cheaper for Europeans and Asians given that approximately
                               75% of investors in UAE’s real estate are from Europe and Asia.

                                                                       USD/AED




                               Source: Bloomberg


Interest rate cuts have made   Following a cut in US interest rates on 18th Sept 07, the UAE cut its interest rates
mortgage on UAE properties     on	the	one-week	and	one-month	Certificates	of	Deposit	by	15	basis	points	to	4.60%	
cheaper                        and 4.70%, respectively, despite clear prospects of exchange rate losses and an
                               increase	in	inflation.	Subsequently,	the	central	bank	trimmed	its	repurchase	rate	five	
                               times from 4.5% in December 07 to 2.00% by 1st May 08 (12th Dec 07 by 50bps to
                               4.25%, 23rd Jan 08 by 75bps to 3.5%, 31st Jan 08 by 50ps to 3.0%, 19th Mar 08
                               by 75bps to 2.25% and 1st May 08 by 25bps to 2.00%). The interest rate cuts have
                               made mortgages on UAE properties cheaper, thereby contributing to an increase in
                               investments in the real estate sector.

                                              UAE’s Repurchase Rate Trend (12th Dec 07-1st May 08)
                                    5.00

                                    4.00

                                    3.00
                                %




                                    2.00

                                    1.00

                                    0.00
                                           Pre 12 Dec 07 12 Dec 07   23 Jan 08     31 Jan 08    19 Mar 08     1 May 08
                               Source: Central Bank of UAE, KFH


                               There has been speculation that the UAE may change its current policy of pegging
                               the dirham to the USD. The UAE government has, to this point, stated that it would
                               prefer to address any currency policy changes in tandem with the other members of
                               the GCC. However, in our view, the government will have to address this issue alone
                               in	the	next	18	months	if	inflation	starts	to	effectively	crimp	economic	development.	



                                                                                                                      6
UAE Real Estate

                               Additionally, we feel the necessary institutions (monetary policy committees or
                               instruments)	are	not	in	place	yet	to	manage	a	free	floating	currency.	Therefore,	we	
                               expect to see a move to a basket of currencies and a gradual revaluation.

                               A stronger currency would improve our long term outlook for the real estate sector,
                               but would slow price appreciation in the near term. Essentially, we feel it would slow
                               foreign speculative demand for real estate in the near term, but provide for a more
                               stable operating environment for developers and contractors in the longer term.

                               4) Record high inflation rates
The UAE’s real estate sector   The	UAE’s	real	estate	sector	will	continue	to	flourish	amidst	stubbornly	high	inflation	
will continue to flourish      rates	as	property	is	used	as	a	hedge	against	inflation.	Inflation	has	overtaken	official	
amidst stubbornly high         lending rates in the UAE, making it cheaper for people to borrow than to keep money
inflation rates as property    in deposit accounts, thus encouraging investments in real estate, the main driver of
is used as a hedge against
                               the surging cost of living.
inflation

                               The	UAE’s	inflation	rate	was	already	high	at	9.3%	in	2006	(2001:	2.8%),	underpinned	
                               by a surge in domestic demand on the back of high economic growth over the years.
                               This caused price pressures, in particular in the real estate market and in certain
                               areas	in	the	services	sector.	Given	the	recent	interest	rate	cuts,	inflation	is	projected	
                               to trend higher to 12.3% in 2008 (2007: 11%) as lower interest rates will result in
                               higher	liquidity	and	credit	growth.	Inflation	in	the	UAE	is	driven	mostly	by	increased	
                               consumer spending. However, the consumer price index (CPI) in the UAE will slide
                               to 8% by the end of 2009 after scaling higher than 12% this year. Spiraling rents
                               which	account	for	more	than	50%	of	the	consumer	price	inflation	will	soften	with	more	
                               residential units coming to the market.

                                                                           Inflation Trend
                                           14
                                           12
                                           10
                                % Change




                                            8
                                            6
                                            4
                                            2
                                            0
                                                2002     2003            2004      2005      2006     2007        2008F

                               Source: UAE Central Bank, KFH Estimates


                               A	 survey	 shows	 that	 high	 inflation	 in	 Dubai	 has	 pushed	 up	 its	 ranking,	 from	 73rd	
                               place in 2005 to 25th in 2006 and 10th in 2008, as one of the most expensive cities
                               in	the	world,	underpinned	by	rising	cost	of	leasing	and	renting.	Office	rents	in	Dubai	
                               have soared 30.7% during the past twelve months, making Dubai the tenth most
                               expensive city in the world, more expensive than New York’s Manhattan, For instance,
                               on	the	commercial	front,	rental	rates	for	office	space	in	Dubai	have	tripled,	rising	from	
                               USD24.5/sq	ft	in	2005	to	USD125/sq	ft	per	annum	in	2008	with	office	occupancy	rates	
                               at an all time high of 98%.

                               Recognising	rising	rental	costs	as	a	primary	catalyst	of	the	climbing	inflation	rate,	the	
                               UAE government announced plans to implement a series of measures to curb soaring
                               rents in the residential and business sectors.


                                                                                                                          7
UAE Real Estate

                              These include restricting rental increases and expediting completion dates of new
                              housing projects. In December 07, the government lowered its rent cap from 7% to
                              5%, though adherence to this is questionable as rental prices continue to skyrocket
                              and demand for property outstrips supply. Thus, trade-off between renting and owning
                              continues to be skewed towards owning due to rising rents and an expectation of
                              price acceleration in the future.

Expect the pace of real       We expect the pace of real estate price appreciation to accelerate in 2008 at
estate price appreciation     approximately	 28%	 as	 inflationary	 pressures	 are	 passed	 on	 to	 consumers.	 Price	
to accelerate in 2008 at      appreciation should begin to slow in 2009 as more supply is delivered. However, we
approximately 28% as
                              still expect a brisk increase of 17% in 2009. The gap between the high- and low-end
inflationary pressures are
                              of the market should widen, as we expect a lack of affordability to impact the low-end
passed on to consumers
                              of	 the	 realty	 market	 first	 and	 consumers	 will	 further	 differentiate	 developments	 by	
                              location and quality. The difference between the 5th and 95th percentiles is anticipated
                              to grow from 165% in 2007 to 204% by 2011. The main driver of price appreciation
                              should be rental yield compression. We have projected that yields should decline
                              approximately 240 basis points to 5.35% over the next 4 years, as the rental market
                              becomes more competitive and the rent/own trade-off continues to move in favour of
                              ownership. Appreciation in rental costs should slow. We project 8% growth in rental
                              prices for 2008, slowing to 3% by 2010.


                                                          UAE Real Estate Projections
                                                 General Projections - UAE Residential Market
                                                                               2007                         2008F
                               Avg. Price(USD/sq.ft.)                           384                            494
                               95th Percentile(USD/sq.ft.)                    817.6                           1070
                               5th Percentile(USD/sq.ft.)                     308.6                          382.3
                               High/Low Differential                          165%                           180%
                               Avg. Annual Rent(USD/sq.ft.)                     30                             32
                               95th Percentile Change in Rent                                               9.70%
                               5t Percentile Change in Rent                                                  3.80%
                               Avg. Rental Yeild                              7.72%                         6.47%
                               Avg. Change in Rents                                                            8%
                               Avg. Price Appreciation                                                      28.87%
                              Source: Globalpropertyguide.com, KFH


                              Moreover, supply constraints exist throughout the UAE construction industry. Owing
                              to	significant	demand	on	a	global	basis,	there	is	little	the	UAE	can	do	to	address	the	
                              issue	of	inflation	other	than	a	change	in	the	currency	regime.	In	the	near	to	medium	
                              term, we expect the pricing power of the developers to continue. Hence, they should
                              be	able	to	cover	cost	inflation	with	price	increases.	However,	we	do	expect	that,	in	the	
                              longer term, there is the threat of prices striking potential purchasers out of the market.
                              In	the	worst	case	scenario,	the	pass-on	effect	of	inflation	could	lead	to	a	drying	up	of	
                              liquidity, followed by substantial price declines. We expect the UAE government to
                              address the problem prior to reaching this extreme scenario.

                              5) Population growth
Real estate demand has been   The	UAE	has	one	of	the	highest	population	growth	rates	in	the	world,	led	by	an	influx	
supported by substantial      of new residents and strong growth in the construction sector. The construction sector
population growth over the    accounts	for	a	fifth	of	UAE’s	total	workforce.The	demand	side	of	the	equation	for	real	
last 5 years                  estate has clearly been supported by substantial population growth over the last 5
                              years. The UAE population has grown at a CAGR over 7% since 2002 and is projected
                              to grow at a CAGR of approximately 5% over the next 5 years.

                                                                                                                       8
UAE Real Estate

                                                                        Population Growth

                                  2008
                                  2007
                                  2006
                                  2005
                                  2004
                                  2003
                                  2002
                                         0                1                2                  3          4              5
                                                                                 mln
                                 Source: UAE Central Bank, KFH


                                 Moreover, approximately 30% of the UAE’s total population falls within the age
                                 category of 15 years. In the next decade, this young population group will form a
                                 sustainable demand for real estate.

                                 6) Rising per capita income levels
                                 In our view, new households alone are not the only drivers of demand. We contend
                                 that affordability and rising income levels must be considered in the demand equation
                                 as key drivers for the real estate industry.

                                                                  UAE Per Capita Income Trend
                                         50,000
                                         45,000
                                         40,000
                                         35,000
                                         30,000
                                   USD




                                         25,000
                                         20,000
                                         15,000
                                         10,000
                                          5,000
                                              0
                                                   2002          2003     2004         2005       2006   2007    2008
                                 Source: UAE Central Bank, KFH


While real estate values have    To assess the current property valuations in the UAE market, we have compared real
come a long way over the last    estate prices per square meter relative to per capita GDP throughout the world. The
5 years, however on a relative   UAE is currently at the low end of the range for real estate prices among countries
income basis, there is still
                                 of similar income levels (its per capita GDP is USD45,000). For countries with per
room for higher valuations
                                 capita GDP of between USD35,000 and USD45,000, the real estate price range is
                                 USD359.5/sq ft to USD1460 /sq ft. The prevailing value in the UAE is at the low end
                                 of the range at USD406.6/sq ft. We contend that while real estate values have come a
                                 long way over the last 5 years, on a relative income basis, there is still room for higher
                                 valuations.




                                                                                                                        9
UAE Real Estate

                                 Gross Rental Yields vs. Per Capita GDP                                                                       Residential Prices vs. Per Capita GDP
                        10                                                                                                           16




                                                                                                 Sq ft Residential Prices '000 USD
                         9          Malaysia                                                                                         14                                                   France
                         8                                                            UAE                                                                   Hong Kong
 Gross Rental Yeild %




                                                               Germany                                                               12
                         7                                                                                                                                               S'pore       Japan
                         6         Brazil                                                                                            10
                                                                           Japan
                         5                                                                                                            8                                           Italy
                                               Hong Kong       Italy
                         4                                                      France
                                                                                                                                      6                                 Spain                    UAE
                         3
                                                           Spain       S'pore                                                         4
                         2                                                                                                                       Malaysia
                         1                                                                                                            2                                     Germany
                                                                                                                                                 Brazil
                         0                                                                                                            0
                             0          10        20           30                40         50                                            0          10        20          30               40          50
                                               Per Caita GDP '000 USD                                                                                       Per Capita GDP '000 USD

Source: GlobalPropertyGuide.com, IMF, KFH


Average rental yields in the                                           Average rental yields in the UAE, between 7.7%-8%, are substantially higher than the
UAE are substantially higher                                           levels in countries of similar income range. Rental yields tend to decline as income
than in countries of similar                                           levels improve. This tendency is driven by the increased ability of the population to
income range
                                                                       finance	the	purchase	of	real	estate	rather	than	rents.

                                                                       Moreover, price appreciation in the secondary real estate market is driven primarily by
                                                                       affordability ratios rather than population growth. Essentially, we feel that the biggest
                                                                       impact to demand is the move from renting to owning property. In this case, both the
                                                                       availability	and	cost	of	mortgage	finance	are	key	drivers	of	demand.	According	to	data	
                                                                       from	the	UAE	Government	and	the	IMF,	mortgage	finance	is	still	at	low	levels	relative	
                                                                       to global norms. It currently stands at 5.9% of GDP in the UAE, compared to 130%
                                                                       in the US, 70% in the UK, and even 10% in Mexico. At prevailing mortgage rates
                                                                       (7% to 7.5%), a monthly payment (including principle payments) will equal between
                                                                       USD3.12/sq ft and USD3.3/sq ft compared to USD3.5/sq ft cost to rent. Embedded
                                                                       in the premium to own is not only the principle payment but also the additional utility
                                                                       value for aspects such as: predictability of future payments, potential future property
                                                                       appreciation, and general enjoyment from ownership. Additionally, the combination
                                                                       of	declining	interest	rates	and	increasing	rental	charges	make	the	cost/benefit	trade-
                                                                       off even more attractive. As the trade-off between renting and owning continues to
                                                                       become more attractive in the UAE, we expect a further enhancement to demand
                                                                       beyond that of new households moving to the UAE.

                                                                       7) Abundant liquidity
                                                                       Less impact of subprime crisis in the UAE – So far!
                                                                       To date, the UAE economy has been fairly insulated from the subprime crisis, mainly
                                                                       owing to the following reasons:
                                                                       •	 UAE’s	huge	pool	of	liquidity	with	current	account	and	fiscal	surpluses	at	USD46bln	
                                                                           and USD49.9bln respectively for 2007 has cushioned the country from the
                                                                           subprime crisis.
                                                                       • UAE markets have proven their low correlation or immunity to developments in
                                                                           global capital markets given the domination of local retail investors in the region.
                                                                           Their low levels of Western institutional ownership have insulated the country
                                                                           from	the	ebbs	and	flows	of	general	emerging	market	fund	flows.
                                                                       • The direct exposure of UAE corporations and banks to the US subprime is almost
                                                                           negligible (<1% of total assets with bulk of exposure concentrated in structured
                                                                           products of high investment grade).
                                                                       • Oil accounts for only 45% of total UAE exports and oil revenues are denominated
                                                                           in dollar. As the dollar weakens against global currencies, oil-producing countries
                                                                           are more likely to increase oil price to offset the relatively lower oil earnings.


                                                                                                                                                                                                       10
UAE Real Estate

                              •	   UAE	has	gradually	diversified	its	export	markets,	from	traditional	US	market	to	the	
                                   EU, Japan and the rest of Asia. Given that exports to the US contribute less than
                                   2% of the UAE’s total exports, the country’s export earnings will not be directly
                                   affected by an expected slowdown in the US economy moving forward.

                              Due to the above factors, the UAE has remained relatively immune to the liquidity
                              crunch in the West, thereby sustaining high investments in the realty sector. It is worth
                              noting, that ‘abundant liquidity’ in the country is largely in terms of domestic liquidity.

                              The US subprime liquidity woes have also failed to dent the UAE real estate mortgage
                              market. The mortgage market in the region remains competitive, with more banks
                              including Islamic Banks, entering the arena. Mortgage lending in the UAE almost
                              doubled in 2007 amid a real estate boom with total home loans worth USD16.02bln
                              as against USD8.5bln in 2006. Banks have boosted their mortgage offerings,
                              encroaching	on	the	market	share	of	home	financiers	like	Amlak	Finance,	which	has	
                              been expanding in new markets, including Egypt and Saudi Arabia, as competition
                              intensifies	at	home.	

The mortgage market in the    Moreover UAE’s commitment to the dollar-dirham peg which has forced it to track
region remains competitive,   seven US interest rate cuts since September 2007 has pushed down home loan
with more banks, including    rates	 across	 the	 country	 as	 inflation	 soars.	 Inflation	 has	 overtaken	 official	 lending	
Islamic banks, entering the
                              rates in the UAE, making it cheaper for people to borrow than to keep money in
arena
                              deposit accounts, thereby encouraging investments in real estate, the main driver of
                              the surging cost of living. Interest rates have decreased, although the interbank rate
                              cuts have not been fully passed to customers. Some banks have reduced their Loan-
                              to-Value	(LTV)	ratios	to	reflect	global	credit	conditions	and	to	comply	with	indications	
                              from the UAE Central Bank that LTV ratios will possibly need to be capped at 85% in
                              the	future.	This	may	reflect	a	feeling	among	some	banks	that	the	market	in	Dubai	is	
                              at risk of overheating. ‘Buy to Let’ mortgages are now appearing in Dubai, with some
                              banks	 now	 willing	 to	 include	 future	 rental	 earnings	 from	 a	 financed	 property	 when	
                              calculating the customer’s repayment ability. Tamweel, for example, will allow a LTV of
                              75% for such properties, and include 75% of the future rental income in the repayment
                              calculation. This type of mortgage is only available for completed properties.


                                                   Key UAE Mortgage Lenders and Terms of Loans
                               Lender                             Rate        Loan to          Loan to           Maximum
                                                             (Interest or       Value         Value Non-           Term
                                                               Profit) %    Residents (%)    Residents (%)        Years
                               ADCB                            6.75-7.25         90               N/A             25-30
                               Amlak                            6.5-8.75         90              70-80              20
                               Barclays                        7.25-8.55         90               75              25-30
                               CBD                              6.0-6.75         80               N/A             25-30
                               HSBC                            7.25-8.25        75-85            75-85              25
                               Lloyds TSB                         7.99          70-85            65-70            15-20
                               NBD                              6.25-7.5         85              60-70              20
                               Noor Islamic                     7.0-8.25         90               N/A               30
                               RAK Bank                         6.95-8.7        75-90             75                25
                               Standard Chartered              5.75-6.25         90               N/A               20
                               Tamweel                          7.4-8.65         95               70                25
                              Source: Various Banks, KFH Estimates




                                                                                                                        11
UAE Real Estate

                                 8) Availability of Islamic Financing
                                 The	emergence	of	Islamic	Banks	in	financing	loans	and	mortgages	in	the	UAE	has	
                                 also provided more options to the UAE investors. Amlak Finance and Tamweel, the
                                 leaders of the UAE mortgage market, with 60% market share collectively, are both
                                 Shariah compliant. Given that the majority of the Dubai residents are Muslims, Shariah
                                 compliant lenders are likely to capture the larger market share in future as well. Some
                                 people argue that Islamic mortgage is high-priced. The fact is that the borrower may
                                 be paying a bigger amount as “down payment” compared to conventional mortgage,
                                 but will also get a better payment plan afterwards. This is the reason that non-Muslims
                                 are	 also	 getting	 increasingly	 interested	 in	 this	 type	 of	 home	 finance.	 Meanwhile	 it	
                                 is also possible that non-Shariah compliant mortgages get rescheduled as Shariah
                                 compliant during the mortgage term.

                                 However there are speculations that UAE banks should be more careful in providing
                                 excessive real estate mortgages as it could be hit by a credit crunch similar to the
                                 devastating US sub-prime crisis in the absence of a mortgage law. Although the lending
                                 activity in the fast-expanding real estate sector has so far remained reasonable,
                                 massive	 projects	 planned	 for	 the	 next	 few	 years	 could	 sharply	 boost	 financing	
                                 activities and deprive the banks the much-needed liquidity since real estate credits
                                 are normally long-term loans. UAE has made great strides in tightening the property
                                 market’s regulatory framework and now needs to have a mortgage law in place.

                                 9) Legal changes to help build investor confidence
Each emirate endeavoring         The changes and the approach towards revamping the real estate regulations in the
to frame regulations that will   UAE have been positive from the investors’ point of view. The promulgation of new
create a unified property law    property laws in the individual emirates, regulating the sale and lease of land and
                                 buildings to citizens and expatriates, kick-started the property boom. The regulations
                                 vary from emirate to emirate, with some, such as Dubai, permitting foreign residents
                                 to purchase freehold properties in designated areas, whilst others, such as Abu
                                 Dhabi, limiting the acquisition of property by expatriates to leasehold properties. The
                                 land departments in each emirate are now endeavoring to frame regulations that will
                                 eventually	create	a	unified	property	law.

                                 The major legal changes that have come in 2007 has been the passing of a broker’s
                                 law, the passing of an escrow law, and the creation of regulatory authorities such
                                 as the Real Estate Regulation Authority (RERA) in Dubai. Broker’s law came into
                                 force in January 2007 in Dubai which stipulates that all brokers, both individuals
                                 and companies, must be licensed with the Land Department. The department has
                                 been assigned the role of training and certifying all brokers to ensure that property
                                 transactions are conducted by licensed and trained brokers who are able to provide
                                 proper advice and professional service to their clients. Moreover Dubai’s Real Estate
                                 Regulatory Authority has announced the creation of a property court with operations
                                 starting in September 2008. The other emirates are also following suit by designing
                                 their own legal frameworks to protect the rights of all parties involved in real estate
                                 transactions.

                                 Although measures have been taken to design a legal framework to protect the rights
                                 of the parties involved in real estate transactions in the UAE, the framework is still
                                 immature as is the realty market in the country which is expected to evolve over
                                 time. Despite the new regulations of property ownership in the UAE, there are still
                                 material concerns in the legal and regulatory procedures including, but not limited to,
                                 government approvals, mortgage laws, mortgage regulation, deed title registration,
                                 residency issues and inheritance laws.

                                                                                                                          12
UAE Real Estate

                                                                     Property Rights Index

                                          Bahrain

                                           Kuwait

                                            Oman

                                             Qatar

                                      Saudi Arabia

                                              UAE

                                                     0         10     20       30        40        50         60        70
                                  Source: Wall Street Journal, KFH


Skepticism and uncertainty        A subcomponent of the Index of Economic Freedom, the property rights index measures
exist due to the relatively new   the degree to which a country’s laws protect private property rights, and the degree
legal framework                   to which its government enforces those laws. Higher scores are more desirable, i.e.
                                  property rights are better protected. The UAE has a score of 40, which is surprisingly
                                  the lowest in the GCC region. The index also assesses the likelihood that private
                                  property will be expropriated and analyzes the independence of the judiciary, the
                                  existence of corruption within the judiciary, and the ability of individuals and businesses
                                  to	enforce	contracts.	Protection	of	property	rights	is	a	significant	factor	affecting	the	
                                  desirability of a residential real estate investment. In spite of huge investor interest
                                  in the UAE realty market, skepticism and uncertainty exist due to the relatively new
                                  legal framework and lack of information regarding the laws. However the formation
                                  of the property courts in emirates such as Dubai would help in strengthening investor
                                  confidence	in	the	sector	in	the	longer	term.

                                  Supply Side Bottlenecks / Challenges
                                  •    Rising cost of cement and raw materials has been challenging for the real
                                       estate sector in the UAE. We estimate that raw material costs alone would be
                                       approximately 19% higher in 2008.The UAE produces its own cement – 15
                                       companies together produce 13.2mln tonnes of cement per annum. However,
                                       production has fallen short of demand since the beginning of the construction
                                       boom in 2003. The difference is met by imports – which has soared 74% from
                                       1.70mln tonnes to 2.96mln tonnes in 2007. However, a stabilised market and a
                                       looming price control intervention by authorities imply that prices may not remain
                                       high	indefinitely.

                                  •    The real estate and construction industries are facing a shortage of foreign workers
                                       and coping with increases in the cost of labour. Approximately 43% of all foreign
                                       workers in the UAE are Indians, making the Emirates particularly vulnerable to
                                       fluctuating	currencies	and	rising	wages	in	India.	Based	on	estimates,	in	2005	an	
                                       Indian worker earning USD80 to USD125 (Dh255 to Dh424) in the Gulf could
                                       earn twice as much as he could at home by signing up to a three-year contract
                                       in the GCC. In 2008, the same worker could earn USD250 a month in India,
                                       while	wages	in	the	GCC	have	been	fixed	at	the	original	contracted	amount,	thus	
                                       reducing the incentive to work overseas. Moreover, amnesty for illegal workers
                                       in 2007 saw more than 250,000 workers leaving the country. This in turn led to
                                       manpower supply issues and rising salaries among the unskilled workforce.




                                                                                                                       13
UAE Real Estate

                                •     Delays and cancellations in the delivery of projects in the UAE is also a major supply
                                      side issue. There are currently more than 160 projects facing delays; nevertheless
                                      we expect this number to fall as industry bottlenecks are addressed.

                                •	    Property	markets	are	driven	by	supply,	demand	and	finance.	At	present	mortgage	
                                      rates in the UAE are high by international standards and require a monthly mortgage
                                      payment of approximately USD5,000 per month on a USD565,500 apartment in
                                      Dubai Marina. For the average Dubai executive this monthly payment is beyond
                                      affordability. The cost of mortgage has become even more crucial to sustaining
                                      the real estate market as projects near completion and occupation.

Supply side bottlenecks have    The UAE government has been constantly taking measures to deal with these supply
kept the demand-supply gap      issue, however, it becomes important to mention at this juncture, that till the time
intact leading to high prices   supply side bottlenecks remain in the real estate and construction sector, the demand-
                                supply gap will continue to exist thus putting an upward pressure on property prices
                                and	hence	making	the	market	more	profitable	for	both	developers	and	investors.

                                                       SWOT Analysis of UAE Real Estate Sector

                                     Strengths                                   Weaknesses

                                     Solid Macro-Economic                        Rising cost of cement and
                                     Foundation                                  raw materials
                                     Huge Fiscal Surplus                         Increasing cost of labour
                                     Dirham-Dollar Peg                           Delays and cancellations in the
                                     Record	High	Inflation	Rates                 delivery of projects
                                     Population Growth                           High mortgage rates by
                                     Rising Per Capital Income Levels            international standards
                                     Abudant Liquidity
                                     Legal changes to help build
                                     investor	confidence

                                     Opportunities                               Threats

                                     Attractive Rentals                          Ambiguities in Legal Structure
                                     Unexploited markets off:                    Lack of statistics regarding
                                     Abu Dhabi                                   availability and yields
                                     Ras Al Khaimah
                                     Ajman

                                Source: KFH Research


                                UAE vs. Other GCC Countries
                                The real estate boom is the GCC has been nothing short of spectacular. With an
                                ever increasing number of projects underway, the industry is attracting investors who
                                are shifting their focus from stock markets to the real estate sector. The UAE alone
                                contributes around 60%of the property boom in the GCC countries with Dubai leading,
                                with a share of 47% among the GCC nations. Abu Dhabi will take over the lead in the
                                next 2-5 years as the emirate accounts for 14% of the market in the entire GCC.




                                                                                                                      14
UAE Real Estate

                                                      Comparison of Rentals and Yields in the GCC (Sept 08)
                             City/Project           Prime Rent          Prime Rent              Prime Yeild           Outstanding        Investment
                             Details                   Office                Retail               Office                  Mega            Volume
                                                   (USD/sq ft)p.a. (USD/sq ft)p.a.                Space                  Project              (USD)
                             Dubai                      95.5                 120.6                8.10%              Downtown Burj            20bln
                             Abu Dhabi                  81.7                  98.0                7.50%              Saadiyat Islands         27bln
                             Kuwait City                70.8                 211.0                10.00%                Silk City             86bln
                             Manama                     43.7                  98.0                 9.00%               Bahrain Bay            1.5bln
                             Doha                       48.2                  90.4                 8.00%              City of Lusail           5bln
                             Muscat                     37.7                    -                    9%                 Blue City             15bln
                             Riyadh                     43.7                 90.4                 10.00%              NBIC Riyadh             0.7bln
                            Source: GCC Real Estate Developers, KFH Research


                            To sustain the boom for as long as possible, the GCC countries are liberalising laws
                            and regulation to establish an organized and transparent real estate sector with a
                            view to attract foreign investors. To diversify their base away from the conventional oil
                            dependence, these countries are broadening the scope of their economies to develop
                            their	 financial	 sector,	 tourism,	 trade	 and	 industry.	 The	 front-runners	 here	 are	 UAE	
                            and Bahrain, with Dubai, in particular, drawing the global public’s attention with its
                            spectacular and visionary construction projects.

                            Dubai
Approximately 2,329 land    Dubai’s real estate market is experiencing rapid growth after the regulatory changes,
plots were sold in Dubai    allowing freehold ownership for expatriate investors and setting up of a real estate
during April-June in 2008   regulatory authority (RERA). The total value of land transactions in Dubai last year
for USD7.74bln as against
                            was USD12.94bln. Approximately 2,329 land plots were sold in Dubai during April-
USD2.94bln for the same
period in 2007              June in 2008 with a combined value of USD7.74bln as against USD2.94bln for the
                            same	 period	 in	 2007.	 This	 reflects	 an	 overall	 rise	 in	 prices	 and	 demand	 for	 space	
                            across the emirate.
                                                      Land Transactions in Dubai-2007
                                       2.5

                                        2
                             USD bln




                                       1.5

                                        1

                                       0.5

                                        0
                                             Jan     Feb       Mar     Apr    May         Jun      Jul         Aug     Sep      Oct     Nov     Dec
                            Source: Dubai Land Department, KFH

                                                                        Dubai land sales 2008
                                       3.5
                                        3
                                       2.5
                             USD bln




                                        2
                                       1.5
                                        1
                                       0.5
                                        0
                                               Jan               Feb                Mar                  Apr              May             Jun
                            Source: Dubai Land Department, KFH
                                                                                                                                                  15
UAE Real Estate

                        The land sales in the emirate are expected to go up further in the coming months
                        as the Dubai Strategic Plan 2015 gains momentum. The demand for space which is
                        augmented by the developmental policies of the Government of Dubai is expected to
                        hold strong in the future.

Saturation might come   Real estate projects are expected to accelerate in response, as supply increases to
for certain types of    cater to the expatriate demand. The growth curve of Dubai’s property market has not
developments in Dubai   reached its peak and it is still very early to predict ‘a bubble burst’. There will be growing
                        need for more real estate developments in Dubai in the short term. While the idea of
                        the market suffering a bubble burst is ruled out for the next 2-3 years, saturation might
                        come for certain types of developments as a result of misinterpretation and lack of
                        statistics regarding demand-supply indicators in the market. For instance lack of data
                        regarding actual demand for high-rise apartments might result in excess production
                        of those units.

                              The real estate cycle dynamics reveal that Dubai is heading towards
                                                          equilibrium

                                                                                Dubai
                                                                                         Equilibrium
                              Allocation




                                                                                                        Fal
                                                                                                            li        5%
                                                                         20%                  10%      Ma ng
                              Asset




                                              30%                                                        rke         20%
                                                                                              35%              t

                                              30%
                                                                         50%
                                                                 ry                                                  75%
                                                             ove
                                              40%        Rec                                  55%
                                                                         30%

                                           Early Stage             Strong Growth             Slowing               Recession
                                                                      Core     Value Added     Opportunistic        Real Estate
                                   Economic Stages

                        Source: GRP Real Estate, KFH


                        Chart Analysis: The figure summarises the real estate sector dynamics and correlates
                        it with various economic stages. The real estate market matures as the economy
                        reaches the state of slow growth and the share of investment in opportunistic property
                        assets diminishes.

                        Core: Assets that achieve relatively high percentage of return from income and that
                        are expected to exhibit low volatility.

                        Value Added: Assets that exhibit one or more of the following attributes—achieve a
                        significant portion of return from appreciation, exhibit moderate volatility and/or are
                        not currently considered core property types.

                        Opportunistic: An asset that is expected to derive most of the return from appreciation
                        or which may exhibit significant volatility in returns. This may be due to a variety
                        of characteristics such as exposure to development, significant leasing risk, or high
                        leverage, but may also result from a combination of moderate risk factors that in total
                        create a more volatile return profile.

                        More importantly, developers in Dubai have increasingly overlooked one of the most
                        salient aspects of real estate: maximizing development returns is not purely a function
                        of building as much as possible i.e. supply increase. This would eventually lead to a
                        saturation of demand and hence a correction in prices.



                                                                                                                                  16
UAE Real Estate

                                                                 Buyers of Property in Dubai
                                                         GCC & Arab              Iranians
                                                          Nationals                12%
                                                           13%
                                               UAE
                                             Nationals
                                              15%                                                        Asians
                                                                                                          40%




                                                     Europeans
                                                       20%
                                Source: Zawya, KFH


Real estate units sold in the   With 80% of the total population comprising of expats in the UAE, total real estate
country are skewed towards      units sold in the country are skewed towards the expat population. Asians top the
the expat population            list of property buyers in Dubai. 40% of the buyers of real estate in the Emirate are
                                from Asia while 20% of the real estate units are bought by Europeans. Moreover
                                different types of properties cater to different sections of the society. For e.g. demand
                                for Condos is dominated by seasonal home buyers and short term expats especially
                                single	professionals.	However	the	seekers	of	offices	or	commercial	spaces	are	high	
                                net worth investors.

                                                          Types of Property and Classification of Buyers
                                 Type                                              Buyers
                                 Condos                  Vacation, seasonal home buyers, short term expatriate couples,
                                                         single professionals
                                 Villas                  Primary home for families and Long term expatriate couples and
                                                         Investors
                                	 Offices	               Currently	dominated	by	market	movements	and	investors
                                Source: KFH Estimates



                                       Expected Investor Involvement in Buying Real Estate Assets in Dubai
                                 Property Market                      2003-05            2006-10               2010
                                 Phases                               (Boom)            (Growth)             (Stability)
                                 Investor Base                                    Investor Involvement
                                 Foreigners                            High             Moderate            Maintained
                                 High Net Worth Individuals            High             Moderate             Declining
                                 Expats- High Income                  Moderate         Increasing           Increasing
                                 Expats-Mid Income                      Low            Increasing           Increasing
                                 RE Agencies                           High             Moderate            Increasing
                                 Speculators                           High             Moderate            Diminishing
                                Source: KFH Estimates


                                Chart Analysis: The fig. summarizes how the role of Dubai’s various residential
                                property investors will evolve. High net-worth individuals, real estate agencies and
                                speculators were the main investors initiating Dubai’s property boom in 2003. The
                                phase of steady growth that started in 2006 will continue till 2010 and demand will be
                                driven by a different set of investors’ i.e. expatriates buying properties either as an
                                investment or to avoid paying escalating rents.




                                                                                                                      17
UAE Real Estate

                                                       Housing Market Performance
Expect Dubai’s cumulative                              In Dubai, we expect cumulative housing supply to overtake cumulative housing
housing supply to overtake                             demand in early 2011. We expect actual deliveries to ramp up from an estimated
cumulative housing demand                              17,000 units in 2007 and peak at roughly 66,000 units in 2010. On the demand
in early 2011                                          side, we expect incremental household growth to taper off in 2009 and 2010, before
                                                       picking up again in 2011 as much of the required personnel for the expected hotel
                                                       launches	and	other	tourism	related	projects	begins	to	offset	declines	from	financial	
                                                       and development sector growth.

                   Dubai Expected Supply vs. Demand                                                      Dubai Exp. Deliveries & Household Growth
             300                                                                                    70

             250                                                                                    60

                                                                                                    50
             200
'000 Units




                                                                                       '000 Units
                                                                                                    40
             150
                                                                                                    30
             100
                                                                                                    20
             50                                                                                     10

              0                                                                                      0
                   2007        2008F       2009F        2010F        2011F                                 2007          2008F         2009F         2010F        2011F
                          Dubai Expected Demand    Dubai Expected Supply                                          Dubai Expected Deliveries       Household growth

Source: Government of UAE, KFH


                                                       Housing Prices
                                                       Slowing growth in terms of new household entrants to Dubai should relieve some
                                                       pricing pressure in 2009. However, we believe much of that relief will be mitigated by
                                                       existing pent-up demand through 2010.

                                                                       Capital Growth Appreciation (Launch to Current Price)
                                                             250

                                                             200

                                                             150
                                                         %




                                                             100

                                                                50

                                                                 0
                                                                        The            Dubai                   Dubai             JLT           Discovery     Internat'l
                                                                       Greens         Marina                  Marina                            Garden         City
                                                                                     (Emaar)                 (Private)
                                                       Source: Real Estate Agents, KFH Estimates


Expect the gap between                                 The huge supply, targets a number of different income groups, with each having
the high and low end of the                            distinctive market forces. The gap between the high and the low end of the market
market to widen by 2010                                should widen, as we expect a lack of affordability to impact the low end of the market
                                                       first	and	consumers	to	further	differentiate	developments	by	location	and	quality.	




                                                                                                                                                                      18
UAE Real Estate

                                                         Market Segment vs. Availability of Supply


                                 Price/sq ft

                                 High                                                        Business, Bay
                                 End                                                         Burj Dubai, Old Town,
                                 Income                                                      Dubai Marina
                                        2000

                                 Middle                                                       Int’ l City,
                                 Income                                                       Dubai Sports City,
                                 Segment                                                      Discovery Gardens

                                       1000

                                 Low                     Government,
                                 Cost                    Dubai Municipality
                                 Housing

                                                   Few                                                   Abundant
                                                                       Expected Supply Availability
                               Source: GRP Real Estate, KFH


                               Housing Rental
There has been a slowdown      There has been a slowdown in the rate of increase of residential rents. The major
in the rate of increase of     reason for this slowdown is the recent availability of housing units, especially with the
residential rents with the     delivery of International City and the handover of several towers at Jumeirah Lake
delivery of new developments   Towers and Downtown Burj Dubai. The reduction of the rent cap from 7% to 5%,
                               however, does not seem to have had much of an impact.

                                                Average Annual Rent of a 2-Bedroom Apartment in Dubai
                                       60,000

                                       50,000

                                       40,000
                                 USD




                                       30,000

                                       20,000

                                       10,000

                                           0
                                                     2004             2005            2006            2007           2008F
                               Source: Real Estate Agents, KFH Estimates


                               At present, Palm Jumeirah and Old Town Burj Dubai areas in Dubai command the
                               highest annual rents, with studio and one-bedroom annual rentals at USD33,333
                               and USD46,666 respectively. On the other extreme, the lowest rentals can be found
                               at International City with studios ranging from USD15,000 and one-bedroom units
                               available at around USD18,333.




                                                                                                                             19
UAE Real Estate

                                                                 Average Annual Apartment Rent
                                             70,000
                                             60,000
                                             50,000
                                             40,000




                                 USD
                                             30,000
                                             20,000
                                             10,000
                                                  0
                                                        JBR          Tecom           Al        Dubai         The       Internat'l
                                                                                  Barsha       Marina      Greens        City
                                                                 Studio      1 Bedroom     2 Bedroom     3 Bedroom
                             Source: Real Estate Agents, KFH Estimates


                             When comparing year-on-year rental changes in Dubai, the highest increases were
                             observed at the Greens for studios where average annual rents increased from
                             USD17,500 to USD23,000, marking a 31% increase July 2008. Interestingly, two-
                             bedroom units at International City witnessed a 36% increase in rents (from USD19,000
                             to USD26,000) when compared to the same period last year. The rental increase
                             seen at International City is mainly due to relatively fewer two-bedroom apartments
                             available at that price.

                                                                Dubai Residential Market Valuation

                                  50                                                                                     600

                                  40                                                                                     500
                                                                                                                         400
                                  30
                                                                                                                         300
                                  20
                                                                                                                         200
                                  10                                                                                     100
                                         0                                                                               0
                                                      Q4 2006                  Q4 2007                  Q2 2008
                                                      Avg Rent (USD/Sq ft) p.a.               Avg. Price (USD/Sq ft)

                             Source: Colliers International, KFH


                             Office Market Performance
Office space in Dubai is     Office	 space	 in	 Dubai	 is	 expected	 to	 grow	 by	 125%	 within	 the	 next	 three	 years	 to	
expected to grow by 125%     600mln	sq	m	from	260mln	sq	m	at	the	end	of	2007.	City’s	320mln	sq	m	of	office	space	
within the next 3 years to   is almost occupied, resulting in high rents as growing working population puts more
600mln sq m from 260mln sq
                             pressure on the available properties.
m at the end of 2007

                                                                     Total Office Supply Growth
                                         700
                                         600
                                         500
                              Mln Sq m




                                         400
                                         300
                                         200
                                         100
                                              0
                                                                   2007                                   2010F
                             Source: Colliers International, KFH

                                                                                                                               20
UAE Real Estate

                                            Limited	delivery	of	new	office	accommodation	has	resulted	in	a	persistent	undersupply,	
                                            precipitating double-digit growth (42%) of rental rates year on year, supported by
                                            vacancy rates of less than 2% across the market. However, a correction at all rental
                                            levels	is	expected	starting	2010,	as	new	supply	of	offices	becomes	available.	

                  Cost of Rent-Commercial Sector                                               Cost of Purchase-Commercial Sector
         140                                                                         1,400

         120                                                                         1,200

         100                                                                         1,000




                                                                             USD/sq ft
 USD/sq ft




             80                                                                          800

             60                                                                          600

             40                                                                          400

             20                                                                          200

              0                                                                            0
                  DIFC         S.Z. Road   JLT           Tecom                                  DIFC       S.Z. Road        JLT         Tecom

Source: Colliers International, KFH


Dubai is one of the most                    Dubai International Financial Centre and Sheikh Zayed Road are the most expensive
expensive business cities in                business locations in the city. Commercial property prices are highest at Dubai
terms of commercial rents                   International Financial Centre (USD 1,266.8/sq ft), followed by Dubai Marina (USD
                                            906.2/sq ft). Once ready, Business Bay will overtake Sheikh Zayed Road as the prime
                                            area for business and trade in Dubai, the reason being the iconic tower of ‘Burj Dubai’,
                                            the	tallest	structure	in	the	world.	Price	index	for	office	space	in	Dubai	is	expected	to	
                                            experience a 30% to 35% hike in the rates for 2008/2009. The commercial real estate
                                            sector in Dubai has outperformed the residential market in terms of investments
                                            and growth potential in the last three years and a major windfall for investors in this
                                            segment in the near future is foreseen.

                                                                                  Dubai Office Market Valuation

                                                 50                                                                                      600

                                                 40                                                                                      500
                                                                                                                                         400
                                                 30
                                                                                                                                         300
                                                 20
                                                                                                                                         200
                                                 10                                                                                      100
                                                  0                                                                                      0
                                                               Q4 2006                           Q4 2007                Q2 2008
                                                                 Avg Rent (USD/Sq ft) p.a.                     Avg. Price (USD/Sq ft)

                                            Source: Colliers International, KFH


                                            Moreover, Dubai will account for 71% of the total Gross Leasable Area (GLA) in the
                                            UAE in 2 years. Dubai (population 1.6mln) has approximately the same amount
                                            of	 office	 space	 under	 construction	 as	 Shanghai	 (population	 20mln)	 and	 Moscow	
                                            (population 10.4mln).




                                                                                                                                                21
UAE Real Estate

                                                                  International Office Market Comparison

                                               20

                                               15




                                    GLA Sq m
                                               10

                                                5

                                                0
                                                         Dubai                   London        Moscow            Singapore
                                                                        Existing Supply       Forthcoming Supply
                                  Source: Colliers International, KFH


                                  Dubai is one of the most expensive business cities in terms of commercial rents
                                  making it an expensive place to do business than well-established business centers.
                                  However, Dubai’s commercial property selling prices are at the bottom, among
                                  business cities around the world estimated to be approximately USD700/sq ft. This
                                  in turn has resulted in abnormally high rental yields, which have reached an average
                                  of 27% compared the global average of 8%.However, our research shows that rental
                                  growth is slowing down. Rents have been affected in the main city, but on Sheikh
                                  Zayed Road, occupancy rates remain in excess of 90%. The real estate rental
                                  market will fragment into two distinct areas; that of old Dubai where rental rates and
                                  occupancy will continue to decline and in New Dubai where strong demand will spur
                                  the construction of new projects.

                                       Rental Cycle Analysis Reveals That Dubai’s Commercial Rental Growth is
                                                                   Consolidating
                                                                         London                 Athens
                                                                Dubai

                                                             Paris

                                                    Frankfurt
                                                                            Rental
                                                                                           Rents
                                                                            Growth
                                                                                           Falling
                                                     Milan                 Slowing
                                                                                                                Stockholm




                                                                                            Rents
                                                                         Rental Growth
                                                                                          Bottoming
                                                    Moscow                Accelerating
                                                                                            Out




                                                                                                     Warsaw

                                  Source: GRP Real Estate, KFH Estimates


                                  Retail Market Performance
In its efforts to diversify the   In its efforts to diversify the economy and to reduce its dependence on hydrocarbon
economy Dubai government          revenues,	 the	 Dubai	 government	 has	 identified	 certain	 key	 industries	 to	 lead	 the	
has identified certain key        diversification	 process	 and	 generate	 alternative	 revenue	 sources.	 Amongst	 these	
industries such as retail,
                                  industries	are	tourism,	leisure	and	finance,	in	addition	to	the	airline	industry	and	the	
tourism, leisure and finance
                                  retail	 industry.	 The	 equation	 is	 quite	 elementary	 –	 fly	 in	 the	 tourists	 and	 let	 them	
                                  shop! To this end Dubai has developed a highly successful marketing campaign that


                                                                                                                              22
UAE Real Estate

                             promotes the city as a leisure and shopping destination of choice for the region, and
                             the world. This has been achieved through the promotion of a number of Government
                             sponsored shopping festivals, namely the Dubai Shopping Festival and Dubai
                             Summer Surprises. A new generation of mega shopping malls, which includes Mall of
                             the	Emirates	and	Mall	of	Arabia,	are	expected	to	firmly	entrench	Dubai’s	dominance	
                             in the retail industry throughout the GCC. The highly successful Mall of the Emirates,
                             at 223,000sq m gross leasable area (GLA), is currently the largest shopping centre in
                             the GCC, whilst the Mall of Arabia (Phase 1) will have a GLA of more than 400,000sq
                             m when it is launched in 2010. Dubai Festival City currently features an estimated
                             GLA of 195,000 sq m(with 58,000 sq m under construction), whilst the Dubai Mall is
                             expected to cover around 344,000 sq m of GLA.


                                                                    Upcoming Retail Area in Dubai
                              Malls in Dubai                                          Completion           GLA (Sq ft)
                              The Dubai Mall                                              2009               34400
                              Mall of Arabia                                              2010               40000
                              Dubai Marina Mall                                           2008                7700
                              Oasis Centre                                                2008                6000
                              Sports City Mall                                            2009               14000
                              Mirdiff City Centre                                         2009               18300
                             Source: Colliers International, KFH


                             This massive increase in the supply of retail space is likely to result in short-term
                             oversupply in the market.

                             Smaller and older malls are likely to experience sharp increases in vacancies, coupled
                             with downward pressure on rental rates.

                                                                      Dubai Shopping mall rent
                                           140
                                           120
                                           100
                               USD/Sq ft




                                           80
                                           60
                                           40
                                           20
                                            0
                                                                   Primary                          Secondary
                             Source: Colliers International, KFH


UAE is second worldwide,     Older malls will be forced to review their viability, and look at repositioning themselves
in terms of recreational     to	appeal	to	specific	market	segments.	New,	larger	malls	with	strong	tenant	mixes,	
shopping, behind only Hong   should be able to maintain current absorption rates, but with reduced demand, could
Kong
                             experience a softening in rentals. Growth in population, as well as increased tourist in-
                             flow,	should	sustain	and	drive	demand	for	all	types	of	retail	space,	but	predominantly	
                             in larger, modern malls with high visitor attendances. In addition, world-class retail
                             malls offer a positive contribution to the city’s hospitality sector, luring tourists to the
                             world’s largest indoor ski slope, best in- class international brand retailers, and the
                             Dubai Summer Surprises and Dubai Shopping Festivals. UAE is second worldwide,
                             in terms of recreational shopping, behind only Hong Kong, where 34% of the people
                             shop once a week for ‘entertainment’ compared against 30% of UAE residents.


                                                                                                                     23
UAE Real Estate

                                 Hotel Market Performance
Average annual hotel             With	 over	 30,000	 hotel	 rooms	 in	 the	 Dubai	 market,	 60%	 of	 which	 are	 classified	 as	
occupancy was estimated to       four	and	five	star	averaging	an	annual	occupancy	of	approximately	85%	in	2007	while	
be 85% in 2007                   achieving among the world’s highest room rates, it is evident that the UAE hospitality
                                 sector has achieved acclaim amongst regional and international investors. While
                                 skeptics sense that the market is unsustainable, and that occupancy rates are bound
                                 to decrease as more hotels enter the market, our forecast indicates that the future still
                                 looks bright. Based on an analysis of future supply the sector is able to absorb 8,000
                                 to	10,000	rooms	in	addition	to	those	estimated	for	completion	over	the	next	five	years	
                                 while maintaining a market wide occupancy of 75%.

                                 Hotel market’s optimism is attributed to fundamental ingredients that underpin the
                                 market:

                                 •    The diversity of the product offering is growing:
                                      With the inclusion of Travel Inn, Premier Inn, Holiday Inn Express, and Easy
                                      Hotels joining Dubai’s growing hotel roster over the next few years.

                                 •    Airline capacity is increasing:
                                      With the expansion of regionally based carriers such as Emirates Airlines, Etihad
                                      Airways, Air Arabia, Jazeera Airways and the increasing presence of international
                                      carriers such as Virgin Atlantic and Aer Lingus, competitive offers on airfare will
                                      emerge as well as a variety of new inbound markets, increasing the potential
                                      market of visitors to Dubai and the UAE to include price-sensitive travelers.

                                 •    Dubai as a brand is increasingly recognised globally:
Dubai’s hospitality market is         In addition, to the brand value of Dubai prevalent in the GCC and Middle East;
expected to diversify in terms        the number of expatriates in the market, the amount of international marketing
of products and prices                undertaken both by the government and the private sector, and the targeted
                                      marketing done by the DTCM, has created strong tourism markets from Western
                                      and Eastern Europe, India, and South Asia. The pending approved destination
                                      status by China to the UAE combined with the growth of Emirates Airlines and
                                      Etihad	Airlines,	flights	will	further	increase	the	potential	market	of	visitors.

                                 •    Growth in cultural tourism to Abu Dhabi, the Northern Emirates, Fujairah and
                                      Oman:
                                      This will create a tourism triangle with Dubai at its core. The promotion and
                                      growth of the neighbouring tourism markets and their differentiated positioning
                                      from Dubai will create complementing destinations to the emirate and generate
                                      additional demand from previously un-tapped markets.

                                 Overall	the	hospitality	market,	over	the	next	four	to	five	years,	is	expected	to	remain	
                                 strong, and is forecasted to diversify both horizontally, in the type of product offered,
                                 as well as vertically by price-point.

                                                    4*/5* Hotel Room Supply and Annual Growth Rate
                                     60,000                                                                               0.5

                                     50,000                                                                               0.4
                                     40,000
                                                                                                                          0.3
                                     30,000
                                                                                                                          0.2
                                     20,000

                                     10,000                                                                               0.1

                                          0                                                                               0
                                                  2005          2006         2007    2008F      2009F          2010F
                                                                       Room Supply    Annual Growth Rate
                                 Source: UAE Ministry of Tourism, KFH Estimates
                                                                                                                         24
UAE Real Estate

                                        Major Upcoming and Existing Real Estate Developments in Dubai




                                Source: Google Maps


Developers in Dubai are         As Burj Dubai registered UAE’s name in the book of world records, by becoming the
constantly coming up with       tallest building in the world, Dubai government-owned property developer Nakheel
several unique and innovative   announced plans to build a near mile-high tower, eclipsing the world’s tallest building.
mega projects
                                With investing in property in the UAE is seen as safe and rewarding haven, developers
                                in Dubai are constantly coming up with several unique and innovative projects.

                                Jumeirah Beach Residence - In 2007, Jumeirah Beach Residence near Dubai
                                Marina	 became	 the	 first	 freehold	 Dubai	 Properties’	 project	 to	 be	 completed,	 when	
                                approximately 6,500 apartments across 36 residential towers were handed over.
                                More than 2,000 families have moved into the apartments since then.

                                The World - The World is a man-made archipelago of 300 islands constructed in the
                                shape of a world map and located 4 kms off the coast of Dubai and is developed by
                                Nakeel Properties at an estimated cost of USD14.0bln. By January 2008, 60% of the
                                islands	had	been	sold,	20	of	which	were	bought	in	the	first	four	months	of	2007.

                                Palm Jumeirah - The Palm Jumeirah is now 20% complete. The handover of all
                                units is expected to take place by the end of 2008. Once complete, the development
                                will boast 940 two and three bedroom apartments and penthouses and a further 40
                                townhouses.

                                Palm Jebel Ali - The island is 50% larger than The Palm Jumeirah, and includes six
                                marinas, a ‘Sea Village’, a water theme park and water homes built on stilts between
                                the fronds and the crescent. The project is expected to be completed by Q4-2012.
                                In March, Nakheel, which is also developing the Jumeirah and Jebel Ali palms,
                                announced that the Deira project will be split into two parts – the palm-shaped island
                                and a Corniche. Now, following further studies and talks with potential investors, it has
                                released details of the revised plans.




                                                                                                                     25
UAE Real Estate

                                Palm Deira - world’s largest reclamation project - The Palm Deira is the world’s
                                largest reclamation project, with 1.14bln cubic meters of land being reclaimed. Already
                                a total of 198mln cubic meters of sand have been put in place. The new blueprint will
                                see the creation of nine different areas. Five islands will form the massive Corniche
                                – Deira, Al Mamzar, Central, South and North – which will be linked to a main Palm
                                Trunk, Palm Fronds, Palm Crescent and Palm Crown. Phase one – Deira Island – will
                                be the entrance to the entire development and will be connected by bridges to the
                                existing Deira district between the mouth of Dubai Creek and Port Hamriya. Transport
                                links will be integrated with existing road networks and the under-construction Dubai
                                Metro.	According	to	Nakheel	reclamation	work	was	still	on	schedule	to	be	finished	by	
                                2013 but completion date for the whole project is still not known.

                                Dubai Investment Park - More than USD6.6bln worth of residential projects are under
                                construction in Dubai Investment Park, bringing the park’s total investment value to
                                almost USD7bln. Phase 1 of Residential City, the mid-cost housing component of
                                Dubai World Central (DWC), a hugely ambitious 140sq km urban aviation community
                                under	construction	in	Jebel	Ali,	has	been	sold	out.	The	first	residents	are	expected	
                                to	live	in	Residential	City	by	June	2009,	a	move	timed	to	coincide	with	full-fledged	
                                operations at the world’s largest airport, Al Maktoum International Airport in Jebel Ali,
                                construction of which is currently well under way.

                                Dubai Waterfront - Dubai Waterfront is being built on an area bigger than Manhattan
                                and Beirut, offering investors over 250 master planned waterside communities
                                with mixed-use, commercial, residential, resort and amenity areas. The handover
                                to	 investors	 of	 the	 first	phase	 of	 development,	 Madinat	Al	Arab,	 the	 planned	 urban	
                                downtown at the heart of Dubai Waterfront, commenced in 2007.

                                Dubai-Singapore Parallel Case Study
                                Dubai and Singapore have many similarities. Both have massive ports serving a huge
                                hinterland, highly developed tourism sectors and are strong on business services
                                and	finance.	Also,	there	is	little	difference	in	the	current	GDP	per	capita	(Singapore:	
                                USD48,000, Dubai: USD40,000), although Dubai’s GDP growth of 11% in 2007 was
                                more than double, compared to Singapore’s GDP growth of 5%.

                                If we compare the real estate sectors of Singapore and Dubai, a typical downtown
                                1,000sq ft apartment will cost around USD1mln and can be rented for approximately
                                USD36,000 per annum, giving a rental yield of 3.6% in Singapore. Whereas in Dubai
                                the situation is completely reverse. A 1,000sq ft apartment in The Greens will cost
                                approximately USD270,000, and the same apartment will rent for USD22,000, giving
                                a rental yield of 8.1%. The activity in the real estate and construction sector is currently
                                very low in Singapore as property yields are too low that it is not economical to build
                                new real estate. However prices remain stubbornly high in the city-state.

Dubai may not experience as     The reason for the huge difference in prices and rental yields is that Singapore is an
sharp a fall 30% in prices as   older, more mature market than Dubai, with clear property laws and a highly developed
Singapore did in 2000           mortgage market. Singapore too went through its building booms and busts similar to
                                that of present Dubai, and yet property owners that stuck it through have come out on
                                top. The Singapore property market went through a boom that began in late1998, with
                                property selling prices increasing a cumulative 37% over two years. This boom was
                                followed by a very short period of stability, after which property prices dropped sharply.
                                During the downturn, property prices fell by about 30%from their peaks. Therefore
                                to understand where Dubai property will be in 10 years, Singapore is probably a
                                suitable model to follow. However Dubai may not experience as sharp a fall in prices
                                as Singapore did. We believe that Dubai real estate would experience a correction in
                                the prices of certain residential developments whereas the commercial segment will
                                continue to boom, offsetting the fall in residential prices to some extent. Thus Dubai’s
                                correction will softly slide the real estate prices into a phase of stability beyond 2010.


                                                                                                                      26
UAE Real Estate

                                                                                      Singapore Real Estate Boom and Bust Cycle (Base Year 1998)
                                                                                     145




                                                        Residential Property Price
                                                                                     140
                                                                                     135
                                                                                     130




                                                                 Index
                                                                                     125
                                                                                     120
                                                                                     115
                                                                                     110
                                                                                     105
                                                                                     100
                                                                                        1998    1999   2000              2001     2002      2003      2004    2005       2006     2007
                                                      Source: URA Singapore, KFH


                                                      Abu Dhabi
                                                      The wealthiest city in the world in terms of per capita income (2008F- USD70,000),
                                                      with both 10% of the world’s oil in the ground and an estimated USD136.2bln real
                                                      estate and infrastructure investments planned till 2010, Abu Dhabi till recently has
                                                      been quiet in comparison to the other Emirates within the UAE in terms of putting
                                                      themselves on the realty map. While the other Emirates (especially Dubai and Ras Al
                                                      Khaimah) were quick to announce mega projects, Abu

                                                      Dhabi has been waiting and watching. The emirate’s patience or alternately lack of
                                                      development	has	had	two	effects;	the	first	has	been	a	lack	of	supply	which	has	driven	
                                                      rentals in both the residential and commercial sector to prices above Dubai. Rentals for
                                                      prime	office	space	crossed	150	/sq	ft,	much	before	Sheikh	Zayed	Road	hit	its	current	
                                                      levels. The second more positive effect has been that Abu Dhabi has watched what
                                                      Dubai has done and has decided to learn from its neighbour’s experience. The key
                                                      difference is better planning, more greenery and better infrastructure to accommodate
                                                      the upcoming developments’ needs.

                                                      In Abu Dhabi, a supply shortage is substantially clearer. We do not expect cumulative
                                                      supply	to	match	cumulative	demand	until	5	years.	In	fact,	we	do	not	expect	a	significant	
                                                      ramp up in deliveries until 2013. The wealth of Abu Dhabi, coupled with its tight housing
                                                      market, could lead to higher increase in prices in the UAE Capital as compared to
                                                      Dubai, over the coming years. This might lead people to move to Dubai, pushing up
                                                      prices there, especially in developments close to the border that are relatively cheap
                                                      because they are less central. As Dubai becomes more expensive, some residents
                                                      may shift to Sharjah and then Ajman, and so on. The result would be a consolidated
                                                      UAE realty market with economic segmentation. Abu Dhabi was always aiming for the
                                                      high end, and that’s exactly what it might get.

                     Abu Dhabi Expected Supply-Demand                                                               Abu Dhabi Exp. Deliveries & Household Growth
              200                                                                                              100

                                                                                                                    80
              150
                                                                                                       '000 Units
 '000 Units




                                                                                                                    60
              100
                                                                                                                    40

              50
                                                                                                                    20

               0                                                                                                     0
                     2007       2008F       2009F       2010F                           2011F                             2007          2008F        2009F       2010F          2011F
                    Abu Dhabi Expected Demand   Abu Dhabi Expected Supply                                                        Abu Dhabi Exp. Deliveries   Household Growth

Source: Government of UAE, KFH



                                                                                                                                                                                    27
UAE Real Estate

In Abu Dhabi, we do not          Despite the announcement of numerous master-planned developments, the impact of
expect cumulative supply to      a two year construction moratorium imposed between 1999 and 2001 is still evident in
match cumulative demand          Abu Dhabi. Demand far exceeds supply in the UAE capital.
until 5 years
                                                                        Cumulative Residential Supply
                                                     220,000

                                                     210,000


                                   Number of Units
                                                     200,000

                                                     190,000

                                                     180,000

                                                     170,000

                                                     160,000
                                                                 2007             2008F           2009F          2010F
                                 Source: Colliers International, KFH


                                 Housing Rentals
                                 One and two-bedroom apartments currently enjoy the highest demand, whilst
                                 buildings with a reputation for effective property management and a good selection of
                                 amenities have waiting lists for potential tenants. In addition, new buildings enjoy high
                                 absorption levels, with some developers claiming that projects are 100% pre-let well
                                 in advance of construction completion. Rental prices have steadily increased over the
                                 past six years, with a price appreciation particularly marked at the upper end of the
                                 pricing	 scale.	The	 inflationary	 pressures	 resulting	 from	 rapid	 rental	 price	 increases	
                                 have prompted the Abu Dhabi Government to cap rent increases at 5% per annum.
                                 We believe the 5% cap might have a perverse effect, leading property owners to ask
                                 for higher rents that capture expectations of future appreciation today.

                                                                        Aggregate Apartments Rents
                                                     60,000

                                                     50,000

                                                     40,000
                                  USD




                                                     30,000

                                                     20,000

                                                     10,000

                                                         0
                                                               1-Bed             2-Bed           3-Bed         4-Bed
                                                                                   Mid Range   High Range
                                 Source: Colliers International, KFH Estimates


                                 Housing Prices
A tight residential market and   Price appreciation in the high income segment, notwithstanding the largest gap in the
a lower base helped housing      current market, remains in the middle income segment. Given the extremely limited
prices in Abu Dhabi to grow      facilities enjoyed by existing middle income properties, new buildings with a range of
fast, 61% in Q2 2008 from Q4     ancillary facilities are likely to perform particularly well. Overall benchmarks of building
2007                             quality and facility provision now are increasing to meet occupier requirements. All
                                 new apartments, targeting middle income occupiers and above, offer central air
                                 conditioning and gas facilities. Almost 70% have underground car parking while
                                 around 25% provide a health club and/or gym to tenants. Provision of these associated
                                 facilities is now a minimum benchmark for new developments in Abu Dhabi. Economic
                                 growth and a shortage of supply have provided the natural stimulus for development
                                 activity in the Emirate. A tight residential market and a lower base helped housing
                                 prices in Abu Dhabi to grow faster, 61% in Q2 2008 from Q4 2007.

                                                                                                                         28
UAE Real Estate

                                                                     Abu Dhabi Residential Valuations

                                      50                                                                                        700
                                                                                                                                600
                                      40
                                                                                                                                500
                                      30                                                                                        400
                                      20                                                                                        300
                                                                                                                                200
                                      10
                                                                                                                                100
                                           0                                                                                    0
                                                           Q4 2006                  Q4 2007                   Q2 2008
                                                                Avg Rent (USD/Sq ft) pa       Avg. Price (USD/Sq ft)
                                Source: Colliers International, KFH


                                Office Market Performance
Existing office space supply    Abu	Dhabi’s	office	sector	experienced	development	in	spurts	between	1978	and	2007.	
in Abu Dhabi will increase by   In recent years growth has not been as dramatic as witnessed in the early 1980s
an estimated 85% to 850,000     when	the	supply	of	office	space	doubled	consecutively	in	1982	and	1983.	Since	2000	
sqm of GFA
                                office	supply	has	grown	by	50%	to	a	total	of	460,000	sq	m	of	Gross	Floor	Area	(GFA).	
                                With	a	spate	of	projects	under	construction	and	planned	by	2011,	existing	office	space	
                                supply will increase by a further estimated 85% to 850,000 sq m of GFA.

                                                                        Cumulative Office Supply
                                               2,500,000

                                               2,000,000
                                 Sq ft (NLA)




                                               1,500,000

                                               1,000,000

                                                500,000

                                                      0
                                                                2007              2008F              2009F              2010F
                                Source: Colliers International, KFH


                                Unsatisfied	 demand	 has	 resulted	 in	 average	 rental	 increases	 of	 over	 30%	 in	 all	
                                office	accommodation	between	2005	and	2006.	There	have	been	further	increases	
                                of around 10% between 2006 and 2007, with the reduction in the average level of
                                increase attributable to the government imposed rental cap. Despite this, rents are
                                anticipated to continue to rise, until substantial supply enters the market from the end
                                of 2009 onwards.

                                The	 continuous	 flow	 of	 new	 organizations,	 keen	 to	 establish	 themselves	 in	 the	
                                emirate, as well as the natural expansion of existing organizations, against the
                                backdrop of benign economic conditions, serve as key demand drivers for real estate.
                                These	 factors	 are	 further	 reinforced	 by	 the	 Abu	 Dhabi’s	 economic	 diversification	
                                ambitions,	and	the	development	of	planned	industrial,	financial	and	free	trade	zones.	
                                According to statistics issued by the Abu Dhabi Chamber of Commerce & Industry
                                (ADCCI), there were approximately 60,000 licensed businesses in the city in 2006,
                                growing	at	an	annual	rate	of	5%.	Abu	Dhabi’s	dedicated	office	stock	has	the	following	
                                characteristics:




                                                                                                                                29
UAE Real Estate

                  •	     There	are	few	purpose-built	primary	grade	office	buildings	in	the	city,	and	the	bulk	
                         of them are owned by government or semi-government entities

                  •	     Occupancy	rates	in	purpose-built	office	buildings	are	typically	around	98%,	with	
                         the balance of space being subject to the natural vacancy rate which is associated
                         with	lease	transfers	or	new	tenant	fit-outs

                  •	     The	quality	of	the	stock	is	low	with	the	majority	of	office	buildings	in	the	city	of	
                         secondary	 or	 tertiary	 grade.	 Nevertheless,	 the	 finishes	 of	 these	 buildings	 are	
                         generally	 fair	 and	 they	 offer	 functional	 office	 space,	 albeit	 lacking	 in	 modern	
                         communications	systems,	services	and	floor	plate	design	efficiency

                  •      Virtually all buildings suffer from a lack of dedicated parking facilities

                                                  Abu Dhabi Office Market Valuations
                       100                                                                                          1200

                       80                                                                                           1000
                                                                                                                    800
                       60
                                                                                                                    600
                       40
                                                                                                                    400
                       20                                                                                           200

                        0                                                                                           0
                                      Q4 2006                       Q4 2007                       Q2 2008
                                                Avg Rent (USD/Sq ft) pa            Avg. Price (USD/Sq ft)
                  Source: Colliers International, KFH Estimates


                  Retail Market Performance
                  In 2000 there were no destination retail venues in Abu Dhabi. During the intervening
                  period, there has been a notable shift towards the provision of international standard
                  shopping malls, doubling-up as visitor destinations. The Marina Mall and the Abu
                  Dhabi Mall both opened during 2001, contributing a total Gross Leasable Area (GLA)
                  of 139,000 sq m, followed by a further 35,000 sq m at the Meena Retail Park in 2002.
                  In 2006, Phase II of the Marina Mall contributed an additional 40,000 sq m of GLA to
                  the city’s available retail mall stock. The opening of Al Raha Mall and Al Wahda Mall in
                  May and July 2007 respectively increased the existing supply by a total of 172,500 sq
                  m. Early indications suggest that these malls are performing in line with the operator’s
                  expectations.

                                              Upcoming Retail Area by Developments
                                             Al Raha
                                           Beach, 36.50                                                   Al Yas
                                                %                                                     Island, 25%




                                  Others, 5.70%

                                   Between the
                                  Bridges, 3.80%                                                      Al Reem
                                                                                                    Island, 15%
                                                   Breakwater,
                                                     4.70%        Khalidiya, 5.6   Zayed Sports
                                                                       0%           City, 8.40%

                  Source: Colliers International, KFH




                                                                                                                    30
UAE Real Estate

Shopping mall GLA in Abu         Shopping mall Gross Leasable Area (GLA) in Abu Dhabi set to increase from
Dhabi set to increase from       810,000sq m at present to 1.4mln sq m by 2010.The new malls have introduced the
810,000sq m in 2008 to 1.4mln    concept of convenience shopping in a climate controlled environment with the added
sq m by 2010                     benefit	of	dedicated	parking,	crèche,	and	adequate	restroom	facilities	–	marking	a	shift	
                                 away from the city’s traditional ‘high-street’ retailing orientation. This continuing trend
                                 towards one-stop shopping environments, in tandem with increases in disposable
                                 income	over	the	last	decade,	has	been	reflected	in	the	number	of	recently	completed	
                                 and forthcoming retail developments. The year 2010 is likely to represent a watershed
                                 for retail market performance in the city, with Sorouh Real Estate set to open the Al
                                 Reem Mall with 130,000sq m of GLA and the Al Yas development adding a further
                                 300,000sq m of leasable area. In 2010, Abu Dhabi will have 0.87sq m of GLA per
                                 capita. Retail Services project that in order to support this volume of retail mall stock,
                                 an approximate annual retail expenditure of USD 4,900 per capita will be required.

                                 Hospitality Market Performance
                                 Historically, Abu Dhabi has been overshadowed by Dubai as a leisure tourist
                                 destination. Demand for hotel accommodation in the city is driven predominantly by
                                 business tourism, which accounts for 75% of overall hospitality market demand. In
                                 2006 the Emirate witnessed average hotel room occupancy rates of 78.6%, while
                                 serviced apartments achieved approximately 80%. Average Room Rates (ARR) rose
                                 by approximately 40% compared to the previous year, to USD 167 and USD 235 for
                                 4* & 5* rooms respectively. Early industry reports suggest that Q2 2008 occupancy
                                 rates have been maintained at 78.5%.

ADTA is seeking to increase      The Abu Dhabi Tourism Authority (ADTA) is seeking to increase the market share
the market share enjoyed by      enjoyed by the leisure tourist segment to 40% by 2015. It plans to do so by developing
the leisure tourist segment to   destination attractions for cultural, sporting, and Meetings, Incentives, Conferences
40% by 2015                      and Exhibitions (MICE) tourism segments. Such initiatives include the provision of
                                 dedicated hotels, resorts, art & culture venues, shopping malls and other facilities
                                 which aim to capitalise on Abu Dhabi’s endowment of natural islands, long stretches
                                 of beach, and its position as the UAE’s sociopolitical and cultural core.

                                 The recent announcement of an agreement between Mubadala, a government-owned
                                 investment authority, and Formula 1 founder Bernie Ecclestone that Abu Dhabi will
                                 play	host	to	the	prestigious	racing	circuit	from	2010,	has	been	hailed	as	the	first	major	
                                 step in the city’s efforts towards becoming a more widely recognised leisure tourism
                                 destination. This has been complemented by the decision of the world-famous Louvre
                                 and Guggenheim museums to establish Middle East counterparts on Abu Dhabi’s
                                 Saadiyat Island, both scheduled for completion in 2012. In line with the government’s
                                 objective of stimulating tourism, the ADTA plans to license the construction of 17,000
                                 new hotel rooms in the Emirate by 2015, of which 45% are in the 5* category.

                                                                       Cumulative Hospitality Supply
                                                    220,000

                                                    210,000
                                  Number of Units




                                                    200,000

                                                    190,000

                                                    180,000

                                                    170,000

                                                    160,000
                                                              2007             2008F           2009F        2010F
                                 Source: Colliers International, KFH


                                                                                                                      31
UAE Real Estate

                  There are currently 9,500 rooms (including all hotel categories and serviced
                  apartments) in the Emirate, with Abu Dhabi city accounting for approximately 8,000
                  rooms, with Al Ain, Al Dhafrah, Mafraq, Ruwais and Liwa providing the remainder.
                  Approximately 8,500 hotel rooms are currently under construction in the city. Increases
                  in the numbers of visitors to the Emirate and an expansion in the destination reach of
                  Abu Dhabi based Etihad Airways have supported strong occupancy rates and ARR
                  growth during the past 18 months. We expect this growth to be sustainable as Abu
                  Dhabi carves out a position for itself as a business, sporting and cultural tourism
                  destination.

                                              Future Hospitality Supply-Market Share
                                       Serviced
                                     Apartments, 2
                                        6.80%                                                5*, 45%




                                  3*, 10.70%


                                                    4*, 17.50%
                  Source: Colliers International, KFH


                  Major Upcoming and Existing Real Estate Developments in Abu Dhabi

                  •    Al Raha Beach development - In Feb, 2008 Aldar Properties entered an
                       USD0.4bln joint venture with Investment Holdings, a local company, to develop
                       the Al Khubeira precinct at its USD18.3bln Al Raha Beach development. The
                       joint venture will develop an area of approximately 50,000 sq m. The Al Khubeira
                       development will comprise residential towers and waterfront villas on reclaimed
                       land. The project, occupying an area of 6.8mn sq m with a total built-up area of
                       12mn sq m, is due for completion in phases between 2009 and 2017.

                  •    Abraj Towers (Phase I) - Situated adjacent to Al Raha Gardens and within the
                       overall	Al	Raha	Beach	development,	the	first	phase	was	completed	in	Dec	2007.	
                       The completed phase comprises 10 buildings with 198 residential units and in
                       excess	of	4,800	sq	m	of	office	and	retail	space.	The	whole	development	including	
                       both phases was sold in Jan 2008 to a newly created Joint Venture Company
                       between Etihad Airways and ALDAR. The Joint Venture Company has leased the
                       whole development to Etihad Airways for 20 years

                  •    Al Raha Gardens - Al Raha Gardens is situated opposite Al Raha Beach, on the
                       main	 highway	 leading	 from	Abu	 Dhabi	 to	 Dubai.	 The	 first	 phase	 comprising	 of	
                       280 villas was completed in December 2007. Phase II consists of 470 villas and
                       Phase III consists of 638 villas with expected completion in December 2008 and
                       August 2009 respectively. The Phase IV consists of a new town centre and the
                       master plan for the development was approved in March 2007.

                  •    Shams Abu Dhabi - This project will be developed on Reem Island in Abu Dhabi
                       by Sorouh Real Estate and occupy approximately 25% of the island. It will occupy
                       1.32mln sq m of which, 90% will be dedicated to residential buildings. When
                       completed in 2011 it will be home to approximately 70,000 people. Sorouh’s Sky


                                                                                                       32
UAE Real Estate

                                     Tower is destined to be the highest skyscraper in Abu Dhabi and Sorouh is also
                                     responsible for the USD243mln Golf Gardens luxury residential development
                                     adjoining Abu Dhabi Golf Club. In addition Surouh has launched Saraya Abu
                                     Dhabi, a new USD1.1bln mixed-use development in Abu Dhabi City, next to the
                                     Corniche Hospital.

                                 •   The Quay - The Quay planned at Abu Dhabi Tourist Club will be a mixed-use
                                     development	with	leisure,	residential	and	commercial	elements,	featuring	a	five-
                                     star	hotel,	Abu	Dhabi’s	first	aquarium,	a	gated	residential	community,	quayside	
                                     office	space	and	a	60-berth	marina.

                                 •   Emerald Gateway project - Abu Dhabi Municipality announced its plan to
                                     develop a luxury residential and commercial real estate project at a cost of
                                     USD2.3bln in partnership with private companies. Located along the Coast Road
                                     halfway between downtown Abu Dhabi and Abu Dhabi International Airport, the
                                     development would include 88 towers on both sides of a 3.5 km segment of the
                                     arterial highway.

                                 Ras Al Khaimah
Ras Al Khaimah’s economy         The economy of Ras Al Khaimah is estimated to grow at a rate of 15% to 18% in
is estimated to grow at a rate   2008, thanks to the rapid advances the emirate has made in real estate and tourism
of 15% to 18% in 2008, led       sectors. Ras Al Khaimah’s portfolio of real estate projects follows an impressive vision
by real estate and tourism
                                 of imagination and innovation, combined with environmental aesthetics. For decades,
sectors
                                 Ras Al Khaimah’s natural diversity and stunning landscape has made it a favorite
                                 getaway destination for many of its neighbors. Hotels in Ras Al Khaimah achieved a
                                 phenomenal 93% occupancy level during 2007. Ras Al Khaimah therefore only needs
                                 to address the rising demand for residential properties and high-end tourism resorts
                                 while still balancing its unique cultural and ecological assets.

                                 A visionary Ras Al-Khaimah government has made a commitment to its growing tourism
                                 market, investing funds into building a superior and greener Emirate. Luxury ‘palm-like’
                                 man	made	islands,	five	star	hotels,	world-class	marinas	and	luxury	residential	property	
                                 are	all	set	to	put	Ras	Al	Khaimah	on	the	map.	Property	in	Ras	Al-Khaimah	benefits	
                                 from its beautiful natural surroundings, including the longest stretch of coastline in the
                                 Emirates, sparkling turquoise waters and picturesque mountains. And it’s all only 45
                                 minutes drive from Dubai International Airport. With land and property space in Dubai
                                 in very short supply, its neighbour is reaping the advantage.

                                 Taking	a	leaf	out	of	Dubai’s	book,	Ras	Al-Khaimah	has	developed	a	flourishing	free	
                                 trade zone, several business parks and has numerous world class tourist attractions
                                 in	the	pipeline.	No	doubt	benefiting	from	the	experience	Dubai,	Ras	Al-Khaimah	has	
                                 taken a very practical approach to property investment. For example, the Emirate
                                 already has procedures in place to sell Freehold title ownership. With bold ambitions
                                 for tourism and development, this steady

                                 emerging Emirate is the ideal investment opportunity. As well as attracting some
                                 USD28bln of domestic and foreign investment since 2000, Ras Al-Khaimah real
                                 estate has a long list of attractive investment qualities including:
                                 •	 Tax	free	benefit
                                 • 100% freehold
                                 • Stable rental market
                                 • Foreign ownership
                                 • Year-round rental, offering fantastic buy-to-let opportunities
                                                                                                                     33
UAE Real Estate

                  •   Natural beauty – stunning beaches and mountain backdrop
                  •   Growing tourist destination -the new holiday destination of the Middle East

                  The government of Ras al Khaimah has created two specialized companies to execute
                  and oversee the emirate’s real estate development, RAK Properties’ and Rakeen.
                  With a sound capital of USD544mln, the public joint stock company RAK Properties’
                  main aim is to attract foreign investors of repute to launch state-of-the-art projects in
                  the emirate. To date, it has been highly successful in this goal, having reported a net
                  profit	of	USD135mln	for	2007,	only	its	second	financial	year	since	inception.	Moreover	
                  the company recently expanded its activities to the Abu Dhabi and Dubai markets
                  and is considering future overseas investment opportunities in Georgia, Tanzania,
                  Morocco, Egypt, and India.

                  •   Julfar Towers - Julfar Towers is a residential and commercial freehold development
                      that will be built 4m (2.5 miles) north of Ras Al Khaimah’s city center. The
                      USD109mln project will comprise of two 40-storey towers, one residential tower
                      and	one	office	tower,	and	is	the	first	project	by	the	Ras	Al	Khaimah’s	government	
                      established development company, RAK Properties. Julfar Towers will have views
                      of the creek, mangroves and mountains, along with being minutes away from the
                      Manar Mall, beaches and golf club. The completion date of the project is end of
                      2008.

                  •   Al Hamra Village - Located to the southern end of Ras Al Khaimah City, the
                      5mln sq m expanse is a picturesque sight that is set around salt water lagoons, a
                      championship golf course and its own marina. The residential project is dubbed
                      as an excellent real estate development project that allows freehold property
                      owners	a	chance	to	redefine	the	meaning	of	luxury	living.

                  •   Mina Al Arab - On a much larger scale is Mina Al Arab (Port of Arabia), a landmark
                      coastal development, spreading over 300 mln sq m and valued at USD2.7 bln.
                      50% of the area will be used for construction and parking—including numerous
                      resort hotels, 5,042 residential units, and 593 villas and townhouses—and the
                      rest	will	be	preserved	to	retain	its	natural	beauty	and	ecology.	The	project’s	first	
                      phase is on schedule to be completed by 2010.

                  •   Al Marjan Islands - Al Marjan Island is an offshore island tourism development
                      being built in the south-west of Ras Al Khaimah. The USD 1.8 bln (USD2.2 bln)
                      project will be located close to the Al Hamra Fort hotel and Al Hamra Village,
                      approximately 27 kilometers (17 miles) from the city’s center. Al Marjan Islands
                      will	comprise	of	five	man-made	coral-shaped	islands,	covering	over	2.7mln	sq	m	
                      and extend approximately 2 km (1.24 miles) into the Arabian Gulf. It will contain
                      10 major hotel sites, 50 large villa sites, a marina and marina village, and a water
                      theme park.

                  •   The Cove - The Cove is a beachfront property being built as the second freehold
                      development project in the city of Ras Al Khaimah. The USD60.5mln beach resort
                      will	 cover	 50	 acres	 and	 contain	 134	 Nubian	 style	 furnished	 chalets	 and	 a	 five-
                      star beach hotel. It is located to the south of the city’s center along Ettihad Road,
                      approximately a 40 minute drive from the Dubai International Airport. The unique
                      investment opportunity of The Cove is meant for individuals who would like to
                      have a holiday home, which they visit for 4 weeks of the year, and the remaining
                      11 months would have a guaranteed 7% net return per annum. The owner also
                      has the facility to sell the property back to the developer at the market value.

                                                                                                           34
UAE Real Estate

                                  •              Gateway City	-	The	Gateway	City	will	consist	of	five	phases,	extending	over	400	
                                                 mln square feet. Phase 1 will consist of an integrated city to service, support and
                                                 supplement the capital city of Ras Al Khaimah. The estimated time for completion
                                                 has been set at 2012. The development will herald a new era in the development
                                                 of the emirate of Ras Al Khaimah. It is being planned with the utmost credence
                                                 to deeply entrenched social, cultural and environmental values, whilst relying
                                                 heavily on the most stringent and tested technological advances.

                                  •              RAK Financial City - RAK Financial City is being developed by the RAK Investment
                                                 Authority, RAKIA. The City comprises of 12 ultra modern towers and will be the
                                                 center	of	RAK	business.	RAK	Financial	City	will	offer	business,	financial,	legal,	
                                                 logistic and insurance services in a free-zone environment.

                                  Fujairah
Influx of expatriates has         The	influx	of	expatriates	in	Fujairah,	which	reflects	its	rapid	economic	development,	
created strong demand for         has	created	strong	demand	for	luxury	flats,	villas	and	office	space	in	the	last	three	
luxury flats, villas and office   years. This has prompted investors and landlords to build large number of apartments
space in the last three years     and charge rents which the average Fujairah resident cannot afford. The emirate’s
                                  remarkable economic development has resulted in hectic activity in the local real
                                  estate	market	during	the	last	few	months,	with	demand	for	flats	increasing	by	more	
                                  than	 25%	 over	 the	 number	 of	 available	 flats.	 Private	 investment	 has	 been	 pouring	
                                  into the construction sector to cope with the spurt in demand since 1995. This has
                                  sometimes matched the growth, but on other occasions fallen short of demand. The
                                  continuous	 increase	 in	 demand	 for	 low-cost	 housing	 and	 office	 space	 in	 Fujairah	
                                  since 1995 has resulted in a construction boom, with building companies cashing in
                                  on the situation.

                                                                        Residential Rents in Fujairah
                                                 14,000
                                                 12,000
                                                 10,000
                                      USD p.a.




                                                  8,000
                                                  6,000
                                                  4,000
                                                  2,000
                                                      0
                                                                1-Bedroom                 2-Bedroom               3-Bedroom
                                                                                   1998    2008
                                  Source: Real Estate Agents, KFH


                                  Major Upcoming and Existing Developments in Fujairah

                                  •              Fujairah Tower - The 45-storey building, the highest such building in Fujairah
                                                 and on the East Coast, has become Fujairah’s new landmark which can be seen
                                                 miles away from Fujairah city. Construction of Fujairah Tower started in early 1999
                                                 and was completed in 2007. The multi-million tower is located at the Fujairah city
                                                 centre, close to Al Diar Siji Hotel. It has succeeded in attracting a large number of
                                                 investors	and	businessmen	flocking	to	the	emirate	to	set	up	economic	projects.	




                                                                                                                                35
UAE Real Estate

                               •         Mina Al Fajer Resort - The emirate of Fujairah is developing USD160mln
                                         mountain-sea resort property, Mina Al Fajer Resort, which will be completed
                                         before	the	end	of	2009	giving	Fujairah	the	first	of	what	is	expected	to	be	a	growing	
                                         number of world-class, exclusive real estate projects.

                               •         Al Jabar Tower - Fujairah’s efforts into the freehold market have been limited
                                         to the 43-storey 170-meter Al Jabar Tower, which will contain 270 residential
                                         apartments, commercial shops and showrooms and is being developed by Al
                                         Jabel Contracting.

                               Ajman
To date, developers in         Ajman is the smallest among the rest of the emirates with only 260 sq km of land but
Ajman have announced           a long coastal line gives this desert area a unique look of its own. The government of
projects worth approximately   UAE in 2004 made this land area a major real estate investment front by declaring it
USD21.78bln                    freehold. Ajman real estate has thus been thriving and witnessing some of the major
                               development and construction boom. Situated in the north of Dubai and the second
                               emirate to be pronounced as freehold area, Ajman real estate has become one of the
                               major	revenue	generating	and	profit	disbursing	area	in	the	UAE.	

                                                 Total Investments in Real Estate and Land Prices in Ajman
                                         2,500                                                                          120

                                         2,000                                                                          100

                                                                                                                        80




                                                                                                                              USD/Sq.ft
                               USD mln




                                                                                                                                     .
                                         1,500
                                                                                                                        60
                                         1,000
                                                                                                                        40
                                          500                                                                           20

                                            0                                                                           0
                                                             2003                               2008
                                                                Investment in Real Estate        Land Prices
                               Source: Ajman Investment and Development Authority


                               Till date, developers in Ajman have announced projects with total investments of
                               approximately USD21.78bln as against USD953.05mln in 2005, USD118.81mln in
                               2003. These projects are expected to add at least 65,000 units and are expected to
                               become available between 2009 and 2012. Meanwhile land prices have sky rocketed
                               from just USD11/sq ft in 2003 to as high as USD100/sq ft in 2008.

                               Ajman was the only emirate to introduce freehold property after Dubai as early as
                               in 2002. Recently, the Government of Ajman opened a special department - Ajman
                               Development and Investment Authority – to regulate real estate development activities
                               in the emirate.

                               The department will study and prepare freehold laws, escrow account law and strata
                               regulations	 similar	 to	 Dubai’s.	 It	 will	 also	 deal	 with	 disputes	 related	 to	 finance	 and	
                               contractual obligations. Ajman is working hard to improve and enhance its infrastructure
                               facilities and has allocated funds in excess of USD0.3bln. In the year 2007, the
                               government of Ajman assigned USD136.2mln towards infrastructure. In Ajman, prices
                               average USD60/sq ft for studios and USD48/sq ft for 1 bedroom apartments. Demand
                               for smaller housing units like studios and 1 bedroom apartments is surging in Ajman,
                               mainly	because	of	the	influx	of	expatriates	from	emirates	of	Dubai	and	Sharjah.



                                                                                                                              36
UAE Real Estate

                                                     Comparison between Ajman and Dubai Property Prices
                                               350
                                               300
                                               250




                                   USD/sq ft
                                               200
                                               150
                                               100
                                               50
                                                0
                                                          Studio                     1-Bed                   2-Bed
                                                                             Dubai           Ajman
                               Source: Real Estate Agencies, KFH Estimates


Approximately 200 freehold     Real estate in Ajman is visualizing its progress in two different approaches. Ajman
residential towers are under   real estate residency projects and Ajman real estate business development projects
construction in Ajman          which include many on going and many future mid to mega level projects. Real estate
                               companies are now investing heavily in the property ownership in Ajman because the
                               market of Ajman is comparatively immature with respect to Dubai but with equal if not
                               greater possibilities of becoming major business market of the world. The emirate is
                               striving to make a name for itself in real estate and tourism, spearheaded by Ajman
                               Investment and Development Authority (AIDA) in conjunction with its development
                               arm Aqaar. The intention is to transform the emirate into a popular destination for both
                               tourism and business. Approximately 200 freehold residential towers are either under
                               construction or have been completed since the city’s freehold regulations opened up
                               the possibility of 100% ownership rights.

                               In October 2007, it was reported that the average price of building materials had
                               gone up 20% from the previous year and that outsourced labour costs had gone
                               up 30%. However, the emirate’s ability to use local contacts and knowledge to get
                               work done, as well as price caps on some materials, has helped to restrain these
                               inflationary	forces.	In	addition,	cheaper	and	more	liberal	work	permits	in	the	emirate	
                               mean fewer problems with labour as has been seen throughout the rest of the UAE.
                               Despite Ajman’s advantages, challenges remain. One of the major concerns for
                               developers is infrastructure, particularly roads, electricity and other public services to
                               keep construction projects running on time.

                               Major Upcoming and Existing Developments in Ajman

                               •           Al Naeymiyah Towers - Al Naeymiyah towers in Ajman, are100% ownership
                                           apartments, available in the emirate of Ajman. The towers are in the area of al
                                           Naeymiyah, hence the name. Phase 1, consists of seven buildings and phase 2,
                                           and	consists	of	eight	buildings,	to	total	15	buildings	with	16	floors	each.	

                               •           Al Khor Towers - Al Khor Towers, also referred to as Creek Towers, are freehold
                                           residential buildings being built close to the Ajman Khor (Creek). Its towers are
                                           identical to the towers of Al Naeymiyah Towers. Al Khor Towers will contain nine
                                           16-storey	apartment	buildings,	with	only	4	apartments	per	floor.	Al	Khor	Towers	
                                           will be easily seen across Ajman’s skyline and will be built in close vicinity to the
                                           Etisalat building and Ajman City Center.




                                                                                                                          37
UAE Real Estate

                  •   Green City	-	It	is	the	first	of	its	kind	project	in	Ajman	offering	654	villas	spread	
                      over an area of 1.42mln sq ft. conveniently located villas offer vast open spaces,
                      elegantly designed homes and landscaped greenery all around. With retail
                      areas nearby, Green City is not just residential development but a complete
                      community.

                  •   Uptown Ajman - The development offers 1504 freehold villas spread over 3.5mln
                      sq ft of area. Inspired by French architecture, Uptown Ajman offers a choice of six
                      different types of villas. With dedicated green areas and recreation facilities, the
                      development boasts of convenient location on the Emirates Road

                  •   Ajman One - The USD0.9bln project will cover 72,000 sq m. Phase 1, which
                      started in 2007 will be completed in three years time, and will have 12 freehold
                      residential towers forming the core of the development. The construction of phase
                      2,	which	is	valued	at	Dhs1.7bln,	is	underway	and	will	consist	of	three	office	towers,	
                      a convention centre, and a 4-star business hotel with serviced apartments.

                  Sharjah
                  Although Sharjah tried to follow Dubai’s lead in property development, the Emirate
                  has not been able to successfully establish a freehold property law. As a result,
                  properties in Sharjah are still leasehold. Investors who are being priced out of Dubai
                  are now considering Sharjah as an alternative investment opportunity. With prices still
                  far behind Dubai and rental demand growing, Sharjah is experiencing the front end
                  cycle of a property boom. Moreover lower rents and property prices in Sharjah draw
                  people from other emirates, even if it means a daily commute to Dubai or sometimes
                  even Abu Dhabi.

                  Major Upcoming and Existing Developments in Sharjah

                  •   Nujoom Islands - Nujoom Islands, also referred to as Stars Islands, is the largest
                      commercial, residential and tourism development project in the city of Sharjah.
                      The USD4.9bln project will be built in three stages, over a period of 5 years, near
                      the village of Hamriya. 60% of Nujoom Islands will be landscaped with beaches,
                      gardens, parks, and roads, while the remaining 40% will contain structures. The
                      project is being developed by Saudi-based real estate company Al Hanoo Holding
                      Company. Comprising residential, entertainment, retail and leisure developments
                      on ten islands, all to be constructed in several phases, the project includes an
                      International Business and Financial Centre (IBFC).

                  •   Sharjah Marina - Another project that was announced at the end of December
                      2007 is the Sharjah Marina, a mixed development project located near Dubai’s
                      Mamzar Park area to be developed by Burooj Properties at an estimated cost of
                      USD4.0bln. This will be 1 mln sq ft of development which will consist of a 2 km
                      canal, 2.5 km beachfront, low-rise buildings, commercial, residential, retail and
                      touristic outlets. The project is expected to be completed in 2013.

                  •   Sharjah Jewe l - Developer JMS has announced plans to unveil a luxury hotel
                      and commercial tower, called the ‘Sharjah Jewel’, worth USD0.5bln, at the Al
                      Mamzar Lagoon in Sharjah. The tower, which is ideally located at the pristine
                      beaches of Al Mamzar Lagoon, will heighten the sense of luxury for anybody
                      working or residing there, and afford good accessibility to Dubai and Sharjah.
                      The unique ‘hanging’ form of the Sharjah jewel will continue to rise dramatically at
                      ground	floor	plus	55	floors.
                                                                                                     38
UAE Real Estate

                              Umm al-Qaiwain
Property ownership in Umm     According the existing real estate law regulating land and property ownership in Umm
Al Quwain is limited to UAE   Al Quwain, property ownership in the emirate is limited to UAE and GCC nationals or
and GCC nationals, however    corporate bodies owned by them. However it allows foreigners and expatriates to buy
foreigners can buy land
                              land within Umm Al Quwain but only in pre-designated investment zones. They can
                              also	enjoy	the	benefits	of	ownership	of	their	surface	property	on	the	basis	of	a	99-year	
                              old lease period.

                              Having	 identified	 the	 real	 estate,	 tourism	 and	 trade	 industries	 as	 potential	 growth	
                              sectors, the planners of Umm Al Quwain have executed a rather ambitious expansion
                              programme, aside from investing heavily in infrastructure development. It aims to
                              integrate these components seamlessly to provide a unique development to bolster
                              the local economy and generate employment for thousands. Developers investing
                              in real estate projects in Umm Al Quwain will now enjoy massive tax holidays
                              and improved amenities like good roads, water and electricity connections, ready
                              availability and hassle-free transportation of construction materials. In addition, Umm
                              Al Quwain is planning to develop industrial and business areas to complement its
                              booming residential market in the hope that the miniscule emirate would attract not
                              only would-be residents but also business speculators.

                              The major property investors in Umm Al Quwain include South Asians, primarily
                              Indians	and	Pakistanis.	Iranians	and	Russians	also	figure	among	the	businessmen	
                              flocking	to	the	emirate.

                              Major Upcoming and Existing Developments in Umm al-Qaiwain

                              •   Al Salaam City/ Madinat Al Salam - One of most extensive realty projects that
                                  has been unveiled in Umm Al Quwain is the Al Salaam City, referred to in Arabic
                                  as Madinat Al Salam; it is an integrated residential and commercial development
                                  within the city of Umm Al Quwain. The estimated cost of this city is approximately
                                  USD8.3bln. Al Salam City is to be constructed in three different phases over
                                  a period of 15 years and is composed mostly of residential districts, high-rise
                                  towers, parks, playgrounds and entertainment centres.

                              •   Umm Al Quwain Marina - The positive happenings in the emirate’s real estate
                                  market have also lured big players like Emaar Properties; among the latest
                                  offerings from the Dubai-based real estate giant is the Umm Al Quwain Marina,
                                  a community of 8000 stylish homes, designer hotels, sports & yacht clubs and
                                  retail centres, along the ocean, lakes and canals. The USD3.3bln worth, Umm
                                  Al Quwain Marina is spread over 2000 acres of land and features 450 acres of
                                  navigable water area.

                              Although currently foreigners and expatriates are debarred from possessing any
                              property in their names, there is widespread belief among real estate consultants that
                              this could soon change, paving the way for freehold property ownership within Umm
                              Al Quwain.




                                                                                                                      39
UAE Real Estate

                                  Conclusion
                                  Among the GCC countries, UAE stands out as the leading real estate market in the
                                  region with USD500bn worth of announced projects expected to be delivered over
                                  the next few years. With the 23rd place among the world’s most competitive countries
                                  (Global Competitive Report 2007-08 issued by the World Economic Forum) coupled
                                  with the failure of the U.S. sub-prime crisis to dent the UAE economy, the country is
                                  set to attract new international investors wishing to relocate to this part of the region
                                  in the years to come.

UAE’s realty valuations have      The real estate market in the UAE has been tremendously successful for investors
enjoyed 300% cumulative           over the last 5 years. The UAE realty valuations have had 300% cumulative average
average appreciation in just      appreciation in just 5 years. Looking at where these valuations have come from, with
5 years
                                  such high rates of cumulative average appreciation, it would be impossible not to
                                  worry about current valuations especially as there is no established resale market to
                                  provide	a	proper	benchmark	for	valuations.	However,	our	view	is	that	the	significant	
                                  regulatory	and	structural	changes	throughout	the	emirates	offer	more	than	sufficient	
                                  justification	 for	 today’s	 real	 estate	 valuations,	 considering	 the	 extremely	 low	 base	
                                  valuations in the earlier part of the decade.

UAE realty sector will            Although the real estate supply in the UAE is expected to grow in 2008-09, projections
continue to flourish led by the   of the sector must essentially be based on economic growth realities. The performance
relatively unexploited markets    of	the	real	estate	sector	is	a	reflection	of	the	overall	economy.	With	a	GDP	forecast	
of Abu Dhabi, Ras Al Khaimah      between 7-8% for the next 5 years and the emergence of the UAE as a hub for
and Ajman
                                  investments in infrastructure building, demand for residential, commercial, hospitality
                                  and retail real estate will continue to increase in the budding emirates of Abu Dhabi,
                                  Ras	Al	 Khaimah	 and	Ajman.	Abu	 Dhabi	 realty	 sector	 will	 continue	 to	 reap	 benefits	
                                  of high prices due to the huge demand and supply gap which is expected to remain
                                  intact till 2013. Moreover improvements in legislation as well as further deepening
                                  of the mortgage market will also act as catalysts for growth. Furthermore the delays
                                  and cancellations in the delivery of projects due to supply side bottlenecks such as
                                  shortage of raw materials and rising cost of labour will ensure a phased out supply
                                  in the market thus prohibiting a huge correction in the short to medium term (2-5
                                  years) Although we forecast a correction in property prices in Dubai by 2010 based
                                  on our demand-supply forecast, the decline would only be limited to certain sectors of
                                  residential developments such as high-rise apartments. Prices of commercial market
                                  real estate, villas and low-rise apartments will continue to be underserved as they are
                                  expected to continue being in demand post-2010 given limited supply pipeline, thus
                                  balancing the decline in other sub-sectors. Therefore we expect to see Dubai real
                                  estate softly landing into a phase of stability rather than a crash or a severe correction
                                  in	2010,	while	the	overall	UAE	realty	sector	will	continue	to	flourish	led	by	the	relatively	
                                  unexploited markets of Abu Dhabi, Ras Al Khaimah and Ajman.




                                                                                                                          40
UAE Real Estate

Chart Analysis
                                Real Estate Sector to GDP                                                     Dubai Residential Market Valuation
              9                                                                             50                                                                                600

                                                                                            40                                                                                500

              8                                                                                                                                                               400
                                                                                            30
                                                                                                                                                                              300
     %




                                                                                            20
                                                                                                                                                                              200
              7
                                                                                            10
                                                                                                                                                                              100

                                                                                               0                                                                              0
                                                                                                              Q4 2006              Q4 2007               Q2 2008
              6
                      2004         2005         2006           2007        2008F                            Avg Rent (USD/Sq ft) p.a.            Avg. Price (USD/Sq ft)




                             Dubai Office Market Valuation                                                  Abu Dhabi Residential Market Valuation

       100                                                                       1,400    50                                                                                  700

                                                                                 1,200                                                                                        600
             80                                                                           40
                                                                                 1,000                                                                                        500
             60                                                                           30                                                                                  400
                                                                                 800
                                                                                 600      20                                                                                  300
             40
                                                                                 400                                                                                          200
             20                                                                           10
                                                                                 200                                                                                          100
             0                                                                   0           0                                                                                0
                       Q4 2006             Q4 2007              Q2 2008                                      Q4 2006                 Q4 2007             Q2 2008
                        Avg Rent (USD/Sq ft) p.a.       Avg. Price (USD/Sq ft)                                    Avg Rent (USD/Sq ft) p.a.      Avg. Price (USD/Sq ft)




                        Abu Dhabi Office Market Valuation                                Total Investments in Real Estate and Land Prices in Ajman
      90                                                                         1,200              2,500                                                                 120
      80
                                                                                 1,000                                                                                    100
      70                                                                                            2,000
      60                                                                         800                                                                                      80


                                                                                                                                                                                  USD/Sq.ft.
                                                                                          USD mln




      50                                                                                            1,500
                                                                                 600                                                                                      60
      40
      30                                                                         400                1,000
                                                                                                                                                                          40
      20
                                                                                 200                 500
      10                                                                                                                                                                  20
       0                                                                         0
                                                                                                       0                                                                  0
                      Q4 2006             Q4 2007               Q2 2008                                                  2003                          2008
                        Avg Rent (USD/Sq ft) p.a.       Avg. Price (USD/Sq ft)                                       Investment in Real Estate        Land Prices




 Comparison between Ajman and Dubai Property Prices                                                                     Property Rights Index
             400                                                                                    Bahrain

             300                                                                                     Kuwait
 USD/sq ft




                                                                                                      Oman
             200
                                                                                                      Qatar

             100                                                                          Saudi Arabia

                                                                                                       UAE
                  0
                          Studio                1-Bed                  2-Bed
                                           Dubai       Ajman                                                  0        10       20      30       40      50         60        70

Source: UAE Central Bank, Colliers International, KFH

                                                                                                                                                                          41
UAE Real Estate




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