Before the global economic downturn, property developers in the UAE were touting the emirate of Ajman as the affordable alternative to nearby Dubai. With lower rents and house prices, comparatively underdeveloped Ajman was, they said, set to become the ‘overspill’ emirate for those who could not afford Dubai’s prices.
Commuting between the two emirates was made easier with the opening one year ago of three extra lanes on the Emirates road, turning it into a 12-lane highway. The northern emirate’s real estate sector, served by this improved access, seemed to hold a promising future.
Ajman was the second emirate to offer freehold property ownership rights to foreign nationals. Under new freehold laws, Dubai began offering 100 per cent freehold property rights to non-nationals in 2002, and Ajman followed in 2004 when it launched the Al-Naeemiya Towers project, comprising 15 freehold residential buildings for sale.
This freehold law fuelled strong growth in Ajman’s real estate sector. In 2003, the emirate’s property market was worth an estimated $118m, according to government transaction records. Following the new legislation, this jumped to $953m in 2006 and, by the third quarter of 2007, developers in Ajman had announced plans to build real estate projects worth nearly $22bn, which would make an extra 65,000 residential units available between 2009 and 2012.
But the financial downturn and property market crash in Dubai has hit Ajman hard, forcing developers to cancel or suspend projects as predicted demand falls away.According to regional projects tracker MEED Projects, of the 32 construction projects currently planned or under way in Ajman, four are on hold with a total value of $11bn. A further eight projects, worth $4.8bn in total, are still in the design stage. Of these, the most expensive is the Ajman Gate project, which is being developed with a budget of $408m by local developer Falcon Eye.
“Ajman’s property sector is highly correlated to how things have played out in Dubai and the UAE overall,” says Saud Masud, head of research and a senior analyst in real estate for the Middle East and North Africa (Mena) region at Swiss bank UBS in Dubai. “Therefore, it should not be of any surprise that, when Dubai’s property market collapsed, so did Ajman’s.”
“The setting-up of Arra is one sign that the government is really watching and taking care of this sector”
Rami Dabbas, chief executive officer, Aqaar
According to a report published by the local Asteco Property Management in October, the average rent across the northern emirates – Ajman, Fujairah, Ras al-Khaimah and Umm al-Quwain – has fallen by nearly 34 per cent since the fourth quarter of 2008, from $13,190 a year to $8,705 a year.
Blair Hagkull, managing director for the Mena region at UK project development services company Jones Lang LaSalle, says the absence of data relating to Ajman real estate transactions is negatively affecting the sector.
The setting-up of the Ajman Real Estate Regulatory Agency (Arra) by the government in December 2008 has introduced a greater degree of transparency. All land, villas and apartments, freehold or otherwise, within the emirate must be registered with Arra.
The regulator has already introduced some important changes. For example, developers in Ajman will no longer be allowed to arbitrarily cancel sales and purchase agreements, and will have to seek permission to do so. Non-compliance with the legislation can result in the developer being fined as much as $27,000.
Ajman-based real estate developer Aqaar Properties, formed in 2006 in association with Ajman Development & Investment Authority, was the first company to register with Arra. “The setting-up of Arra is one sign that the government is really watching and taking care of this sector,” says Rami Dabbas, chief executive officer of Aqaar and head of real estate development at the development authority. “The whole idea behind Arra is to protect investors and developers. We are happy to have Arra watching as this gives confidence to our clients.”
Aqaar is behind the Ajman One project, which is being developed in two phases. The first consists of 12 residential towers, which are due to be completed by the end of the first quarter of 2011. Dabbas is confident that it will hit this target. “Construction on phase one is progressing smoothly and is being developed at full speed,” says Dabbas.
“As for phase two, the piling of the foun-dations is being done but at a slow pace. Our cash flow has been affected so we have had to extend the timeline for this phase.”
UBS’s Masud says one key issue that needs to be addressed if Ajman’s real estate market is to develop to its full potential is the poor state of the emirate’s infrastructure, which is a major concern for developers working in Ajman. Roads, power and water are crucial for ensuring that construction projects run on time. The UAE’s northern emirates suffer from a chronic power shortage, which led to power cuts throughout the summer months of this year.
Given its symbiotic relationship with Dubai, the pace of Ajman’s recovery is likely to hinge on that of Dubai’s. In the shorter term, although the property market continues to be in a poor state, there are some signs of recovery. The average decline in apartment rental rates in the northern emirates slowed to 4 per cent in the third quarter of 2009, down from 21 per cent in the first quarter. Even so, it is clear there is a long way to go before the market recovers.
“Yes, the decline in prices might be slowing down, but it is still a decline,” says Masud. “Recoveries are never V-shaped. Things are going to bottom out for a while before they start to recover.”