It was touted to be Dubai's own ‘Midtown Manhattan' — a mixed-use enclave in the heart of the city's business corridor, replete with boutiques, cafés and diverse restaurants. But, Business Bay is still eons away from resembling what it was promoted to be in the master developer's marketing brochures. With the global financial crisis putting the brakes on the development pipeline in Dubai, the community today stands in stark contrast to its established neighbouring enclaves — Downtown, DIFC and the Shaikh Zayed Road corridor. Largely a construction zone, Business Bay is currently accessed via dirt tracks and has few shops or other facilities to boast of.
Fledgling infrastructure has caused sales prices and rentals in the completed residential towers to plummet. This, in turn, has attracted the interest of investors and tenants, who are willing to ignore short-term infrastructure glitches for long-term returns. "I bought a three-bedroom apartment in Executive Towers in April 2010 as a mid-long term investment. It is well-situated and can rightly be called the ‘Midtown Manhattan' of Dubai once all the promised facilities are in place. Until now, only two swimming pools have been delivered and cater to ten buildings in Executive Towers. The roads, retail facilities, hotel and four gyms are a work in progress. Currently, there is a lot of inconvenience. However, we are tolerating it and would be pleased to see more progress on roads," says Yunoos Osman, a South African investor.
Potential for good returns
Pegged at an average sales price of Dh725 per square foot, Business Bay units can fetch good returns in future, owing to capital appreciation. With a location bang in the city's nerve centre, Metro connectivity and proximity to attractions such as The Dubai Mall, the Burj Khalifa and the Dubai Fountain, prices in Business Bay are bound to rachet up once the property market stabilises. "The infrastructure concerns in Business Bay are having an effect on occupancy levels, which is not increasing at the levels it was anticipated. But, there is still a substantial migration into Business Bay because of the low rents. The low rents give a very strong reason for tenants to upgrade themselves," explains Ranjeet Chavan, director, SPF Realty, a property brokerage firm.
The rent for a studio in Business Bay ranges from Dh40-45K, a one-bedroom apartment at Dh55-65K, and two-bedroom unit at around Dh70-85k. Owners are also offering incentives such as a longer rent-free period and increased number of instalments to attract prospective tenants.
"I moved to a two-bedroom in Executive Tower Block K two months ago. I moved here from The Gardens and currently pay Dh70,000 for my unit [via four cheques]. We chose this location since it is mid-way between my wife's and my office in Silicon Oasis and Nad Al Sheba respectively. We have a good view from our unit on the 22nd floor — we get to see Al Khail Road and a bit of Shaikh Zayed Road too. However, it doesn't get noisy at all," says Amir Ansari, a tenant. Another draw for tenants moving into Business Bay is panoramic views of the Burj Khalifa and the Dubai Fountain. However, these views come with a premium attached.
A handful of completed towers
While all sales and leasing transactions are limited to the Executive Towers, two other residential towers, namely Churchill Residency and Scala Tower, have also been handed over in Business Bay. "Eighty per cent of the current transactions are happening in Executive Towers and a few in Churchill. No other project is currently moving in the absence of a concrete completion date and the high price that the owners shelled out when they bought in the peak," says SPF's Ranjeet.
Though a part of the master community, the Executive Towers is a stand-alone project, with 2,211 residential apartments, with its own retail area, a hotel building and an office tower. It's a different matter that swimming pools are the only facilities completed by Dubai Properties.
The retail options in Business Bay are currently limited to a supermarket that offers a delivery service, a beauty salon, a rent-a-car outlet and a laundromat. "We currently shop either at the Dubai Mall, the Oasis Centre or Mazaya Centre across the road," adds Yunoos. Other amenities that remain to be delivered in the Executive Towers include a gymnasium, children's play area, and sauna. Residents have not been able to avail of reserved car parking yet. "Once fully occupied, the retail stretch in Business Bay could resemble The Walk in Jumeirah Beach Residence," says Amir.
The service charge at Executive Towers has been pegged at Dh15.6 per square foot. Owners need to pay separate district cooling charges to Empower and usage charges as well. "The interim owners' association (OA) is in constant touch with Dubai Asset Management. They claim to have awarded the gym and landscaping contracts. However, we don't believe the service fees are commensurate with the facilities provided," adds Yunoos. The service fees are likely to be revised once the OAs get registered with the Real Estate Regulatory Agency (Rera).
The fees are also affecting the current rental yields at the development to a great extent. SPF's Chavan says approximately 20 per cent of the gross rental yield in Business Bay would be consumed by service charges. This certainly would not appear to be encouraging in these days of declining rentals.
Buyers negotiating hard
"After deducting service charges, the net rental yields range around five per cent," says Jiawei Liu, a real estate agent at PowerHouse Properties. However, this would be in the range of seven to eight per cent for units in Executive Towers. With the buying price almost close to the launch price and very competitive in comparison to units in Downtown, buyers are taking advantage of sellers who are negotiating hard to sell their apartments. "Once the infrastructure is ready, prices will stabilise and it is likely that prices will rise. So, investment at this time could be very profitable," says Jiawei.
However, real estate consultancies have been attaching the much-hackneyed term, ‘oversupply', to Business Bay. "While its location is good, the neighbouring communities of Downtown, DIFC and Shaikh Zayed Road itself are all much further along the development pipeline, and as such can offer would-be tenants a much better lifestyle than what is available in Business Bay. Until infrastructure, retail and amenities are all in place and of comparable standard to neighbouring developments, demand will remain weak, regardless of how much the master developer tries to control the pipeline," claims Charles Neil, CEO, Landmark Properties.
Meanwhile, the Land Department has zeroed in on a few incomplete towers in Business Bay to qualify for its pilot Tayseer scheme. Under this plan, developers and investors in 40 shortlisted projects will receive a government finance guarantee to ensure completion. Industry experts, however, warn against flooding Dubai with further residential supply. "Maybe the scheme should be delayed until existing supply is completed and occupied. Tayseer funds could be provided to the master developer to upgrade infrastructure and amenities, thereby making the area more attractive, generating demand and improving investor value, in Business Bay for instance. This would then make it more attractive for developers to complete their projects," suggests Landmark's CEO.
"Around 70 per cent of investors in Business Bay are end-users and the rest are those looking for a 5 to 6 per cent net annualised returns," says Ranjeet Chavan, director, SPF Realty.
