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The Rulers of Dubai

Dubai, a Pearl Created by Visionaries. The Rulers of Dubai The last three rulers of Dubai have made of Dubai the city they could only dream of. The New York of the Middle East is taking shape and creating growth opportunities in real estate as well as other supporting industries Dubai Vision

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The Rulers of Dubai

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  1. Dubai, a Pearl Created by Visionaries The Rulers of Dubai • The last three rulers of Dubai have made of Dubai the city they could only dream of. The New York of the Middle East is taking shape and creating growth opportunities in real estate as well as other supporting industries Dubai Vision • Dubai’s visionary leader is determined to make of Dubai a world-class city in the economic, financial and tourism fronts. In less than 5 years a series of regulations have been introduced that have attracted investments, companies and top professionals from all over the world. The ruler has made Dubai the Middle East’s main economic hub • Dubai has been one of the fastest growing economies in the world in the last few years. In Dubai’s “Vision 2015” (released earlier this year), Dubai is to become a “Global City” with a projected GDP growth of approximately 11% to reach AED 397 billion (US$108 billion) up from US$ 37 billion in 2005 • The vision calls for diversifying income sources to become less reliant on oil while focusing increasingly on tourism, retail, construction and manufacturing Qatar Dubai UAE Saudi Arabia Oman • Situated along the south-eastern tip of the Arabian peninsula. Qatar lies to the north-west, Saudi Arabia to the west, south and south-east, and Oman to the south-east and north-east • The UAE are a Constitutional Federation of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Qaiwain, Ras al Khaimah and Fujairah • Occupying an area of about 83,600 sq. km (32,400 sq. miles) – roughly the size of Portugal. The coastline of the UAE was approximately 1,318 km but land reclamation projects are extending this figure • Dubai's strategic location midway between Europe and Asia, makes for easy accessibility. London is seven hours away by air, Frankfurt six, Cairo four and Hong Kong eight

  2. The UAE Economy – World Comparison 2007 GDP Growth 2007 GDP/capita (USD) Source: CIA World Factbook, 2008 Source: CIA World Factbook, 2008 • UAE has had a real GDP growth of 8-9% in the last years, in line with other Asian tigers like China or India • It is expected that the GDP real growth rate in the following 2 years will be approx. 6-8% (even though the government plans are to grow at a rate of 11%) • The UAE GDP per capita is the seventh in the world, above global powerful countries such as the US and Germany • It doubles the EU average and it is 5 times the world average

  3. The UAE Economy – Diversification GDP Breakdown by Industry, 2007 • Despite the recent successful diversification of some emirates, the oil and gas sector still represents a 27% of UAE’s nominal GDP and still is a critical component of the country’s growth • However, the non-oil sector has benefited from the extremely high oil prices which is subsidising the growing government budget, source of many of the country’s initiatives. Additionally, it has fuelled the development of the construction, real estate, financial and tourism industries • Dubai government has the first-mover advantage. The other emirates, however, are also diversifying their economies, liberalising their social and economic policies and providing incentive to both local and foreign companies to invest and contribute to the UAE growth • The government efforts have started to pay off, making the UAE a regional economic, trading, financial and tourism hub • The UAE continues to attract significant flows of foreign direct investments (FDI) and expatriate labour Public Sector (1) Services Sector Industrial Sector Oil and Gas Water and Electricity Agriculture Source: Dubai Strategic Plan 2015, Dubai Ministry of Economy (1) Includes trading, construction, transport, communications, real estate, hospitality and social and personal services

  4. The UAE Population – Growth Population Growth by City, 2001-2010E • Dubai and Abu Dhabi populations have grown 7-8% annually. Such growth is expected to increase in the coming years • This huge rise in population is due to the expatriate community influx in the UAE • In Abu Dhabi 78% of the population are expatriates, whereas in Dubai the percentage goes above 85% approximately • Dubai has a young population pyramid: 63% is in the 20-40 age bracket. It is precisely the population in this bracket that tends to be willing to acquire their own apartment/villa (‘000) 7.9% 7.5% 7% 8% (Annual Growth) (Annual Growth) +421K +463K Source: EFG-Hermes

  5. Regional HQs – Dubai Ranks 4th Multinational Regional Headquarters Main Specialised Business Cities in Dubai Dubai Internet City • Hosts some of the world’s most prominent ICT-related companies (Microsoft, Cisco, Dell, Siemens, Oracle, HP, VISA, IBM, Intel, SUN, Sony Ericsson, Samsung) Number of Regional HQ set up in 2005 % of total Dubai International Financial Centre • DIFC is the world's fastest growing int’l financial centre and accommodates major financial institutions (Merrill Lynch, MSDW, Goldman Sachs, Barclays, Credit Suisse, Deutsche Bank) 14% Jebel Ali Free Zone • Drives industrial and trade development and ranks among the world’s largest and fastest growing free zones. Has attracted +6,000 companies with a diverse industrial mix 11% 7% Dubai Media City • DMC is the only global media and TV hub in the region where all media-related businesses thrive together (CNN, BBC, CNBC, Reuters, MBC, Showtime, Associated Press, Sony) 5% Knowledge Village • Education industry specialisation, has attracted international educational institutions from Australia, Belgium, Canada, France, India, Ireland Pakistan, Russia, UK, etc. (e.g., INSEAD campus, Sorbonne campus) 1% Dubai Healthcare City • Healthcare community offers specialised medical treatment, leading prevention and rehabilitation, research and healthcare services 0.5% Dubai Maritime City • DMC is the world's first purpose-built maritime centre and is creating an environment for the networking and integration of maritime industry players from all over the globe Source: Landmark Real Estate Investment Management, 2006 Many companies have already set up their regional headquarters in Dubai. A set of specialised cities are currently hosting the majority of the Fortune 500 companies in the world

  6. Dubai Ports – Rank 9th, and 3rd re-export hub Top-10 International Ports, 2006 Dubai Ports Evolution, 2001-2006 Container traffic, thousands of TEUs Container traffic, thousands of TEUs Annual Growth 22% Source: Dubai Ports Authority, 2008 Source: American Association of Port Authorities (AAPA) World Port Rankings, 2008 With an average annual growth of +20%, Dubai has emerged as one of the new leading container ports of the world, achieving the 9th position in overall traffic and the 3rd as a re-export hub. Moreover, Dubai's ports are expanding their cargo-handling capacity further to be able to handle 22 million containers a year by 2020

  7. UAE Tourism Industry – Dubai Airport Ranks 7th International Passenger Traffic, 2007 • The robust performance of the UAE tourism and travel sector has had a positive impact on the demand for real estate in two ways: • Directly: As consistent increases in tourist arrivals result in greater demand for hotels and furnished apartments • Indirectly: Through the creation of jobs, which encourages the influx of expatriates and eventually leads to increased demand for quality housing • 6.5 million tourists arrived in Dubai in 2007. The current governmental target for tourism includes receiving 15 million tourists by the end of the decade (which would represent a CAGR of 23%) • Hotel revenues have increased from approx. AED 1.8 billion in 1996 to AED 10.8 billion in 2006 (CAGR of 20 %.), and the average occupancy rate in Dubai reached 87% Million passengers Source: Airports Council International, 2008 • Dubai International Airport had the highest growth rate (20%) in the world in 2007. It has grown at an average of 15% annually since 2002 and constitutes 27% of total Middle East traffic • The Emirate forecasts 40 M passengers in 2008 and 60 M by 2010. To achieve this growth, Dubai World Central, the largest airport in the world, is under construction in the Jebel Ali area. The total capacity will be 120 M passengers annually Source: BBC, Department of Tourism and Commerce Marketing

  8. Financial Hub in the Middle East Top International Financial Centres, 2008 • Despite the fact that Dubai Financial Centre is still in its early stages it already ranks among world's top-25 financial centres • Being the leading financial centre in the region (followed by Bahrain and Qatar ranked 39th and 47th respectively) • The 4th most competitive in Asia • Dubai's position is a sign of growing importance of the Gulf as a whole on the global financial stage, thanks in part to high oil prices and large government investment • The Dubai International Financial Centre (DIFC) was set up by the government in 2004 to make of the Emirate a financial services hub • Has attracted more than 500 companies including top foreign financial institutions • It serves the region with the largest untapped emerging market for financial services • It is strategically located to bridge the gap between existing financial centres in London and NY in the West, and Hong Kong and Tokyo in the East Global Financial Centres Index (GFCI) measuring overall competitiveness Ranking 1 2 3 4 5 6 7 8 9 10 24 39 42 47 Source: The Global Financial Centres Index, City of London Corporation, March 2008

  9. UAE Retail Industry – Ranks 8th in the World Top-15 International Retail Markets, 2008 • UAE ranks 8th among the Top-15 Most International Retail Markets with 41% of international retailers present in UAE • Retail in the UAE has changed beyond recognition in recent years • The Dubai Mall, world’s biggest shopping mall will open in 2009 • Emergence of some of the most high-profile retail developments in the world (e.g. Dubai Mall, Marina Mall, Ibn Battuta, etc.) • Creation of successful shopping events to attract regional buyers (e.g. Dubai Shopping Festival) • International retailers are looking to the world’s emerging markets to drive the success of their businesses • 40% of top retailers expect emerging markets to provide their source of growth over the next 5 years, while only 25% expect to see growth concentrated in their home markets Proportion of international retailers trading, % Source: How Global is the Business of Retail, CBRE, 2008 (the study mapped the global footprint of 250 of the world’s top retailers)

  10. Dubai – How was the miracle possible? Oil revenues, which have doubled in the recent years and the economy growth have allowed Dubai to generate funds to invest in… • Infrastructure both for business and its residents: specialised cities (e.g. Internet City, Media City, HealthCare City, DIFC, etc.), top-class health and education system, road and air transport networks, etc. • Real estate megaprojects (e.g. The Palms, Burj Dubai, Dubai Land, etc.) to absorb the housing demand of the expatriate population and the hotel demand of its growing tourism industry Economic and political measures to open the UAE as a key differentiator to the rest of countries within the Middle East… • To attract investment and entrepreneurs: free zones, tax free investments, amongst others • To attract human capital: attractive tax-free salary packages, tolerance towards different cultures and high level of security • It serves as the main hub midway between Asian, European and African markets. This factor makes it especially attractive both for regional and global companies • Political and social stability, in comparison with neighbouring countries, which has attracted most of the funds in the region • Attracts a low-cost labour force from neighbouring countries (such as India, Pakistan or Bangladesh, amongst others ) Dubai's geographically strategic location has been key for its growth because…

  11. The Residential Real Estate Market – Rental Yield Dubai Cap Rate(1) vs. other regions, 2007 • The current UAE Cap Rate commands a +4/5% premium over other world markets … • … which implies that investors in the UAE expect a higher return rate than in other markets • Given its low risk free rate, it is expected that the Cap Rate of UAE will go down in the coming years… • …however, given the expected high inflation rate, rental income should increase, and therefore the UAE real estate market still has room to grow and appreciate Today Future Source: Damac, 2008 (1) The Cap Rate Model is used to estimate the value of income producing properties. That is, the Cap Rate is the net operating income (NOI) from a property (adjusted for vacancy rate and operating expenses) divided by the selling price of the property

  12. Singapore Moscow Tokyo Amsterdam Budapest Barcelona Hong Kong The Residential Real Estate Market – Future Residential Market: Supply vs. Demand International Benchmark (‘000) units Price/ feet2 London New York Paris Rome Shanghai Prague Dubai Abu Dhabi Kiev Warsaw Bangkok Cairo GDP per capita, ‘000 USD Source: Colliers International, HSBC Source: HSBC, Jones Lang LaSalle, Richard Ellis, PWC • In comparison to major cities worldwide, on a relative basis, given the amount of wealth in Dubai, prices are still low • The widely anticipated oversupply in Dubai has yet to materialise. Deliveries continue to be pushed back and scaled down. Based on the latest estimates, the market in Dubai will remain undersupplied until 2011 at least

  13. Mortgage Financing Market – Evolution Mortgage financing is a critical part of the growth of any property market. In the UAE, although the market is experiencing unprecedented growth, it is still in its infancy • The expected mortgage financing market in 2007 (AED 20 bn) represents only a 1% of the total value of announced projects in the UAE (AED 1.7 trillion) • Moreover, the high spread applied to local mortgage loans (3-5%) makes us believe that the mortgage rates currently at 8% should decline • The entry of international financial services firms will contribute to the reduction in spreads • In line with the spread reduction, the target market will increase and demand increases will reinforce the current real estate boom Home finance market, AED billion Total mortgage value to GDP 1.2% 1.4% % total banking assets Note: Emerging markets include Malaysia, Estonia, Thailand, Chile, Latvia, Colombia, China, Mexico, Jordan, Croatia, Bolivia, Hungary, Morocco, Tunisia, Czech Rp, India, Poland, Slovakia, Slovenia, Bangladesh, Iran, Peru, Algeria, Saudi Arabia, Pakistan and Ghana Source: OECD, IFC, Shuaa Capital 2.4% 3.4% % total M2 liquidity

  14. Interest Rate – Evolution Interest/ Inflation Rate Evolution, 2002-2011 • A surge in domestic demand has generated price pressures, particularly in real estate and energy, as well as in services such as education and healthcare • Capital appreciation due to a rate of inflation of 10% would be more than enough to offset a mortgage payment borrowed at a rate of 8%. The investor would be left with 2% of the property value as a net return • In spite of a future reduction of the inflation rate, the real leverage cost will continue to be very low at 1-2% levels Negative real interest rate 10.0% 8.0% 6.0% Positive real interest rate Source: IMF (International Monetary Fund), 2008 Note: a negative real interest rate occurs when the rate of inflation exceeds the cost of borrowing (mortgage rate). The cost to the buyer of financing the purchase of real estate becomes negligible because capital appreciation (which is caused by the high rate of inflation) offsets the mortgage payments which are calculated at the lower mortgage rate. Although negative rates are unsustainable in the long run, they can exist for several years if the market is not mature

  15. Regulation – Guarantees to Investors After an initial growth period without a sophisticated regulation, the Government of Dubai has launched several initiatives to regulate the real estate sector to provide additional guarantees to local and foreign investors and to further boost the development industry Brokers Law Escrow Law RERA (1) Main Features • All brokers must be registered with the Land Department • Training and certification to be enforced • Developers to deposit off-plan sales funds into a guaranteed account • Funds to be released in line with % of completed construction • Responsible for overseeing operations of developers, brokers, financers, etc. • Institute rent caps • Provide information on the property market • Will help to weed out untrained, unqualified brokers • Buyers can be assured that they are dealing with licensed and certified professionals • Ensure that buyer funds are being utilised for specific project • With 10% of funds being held for 1 year, ensures defects at handover are repaired • Provide incentive to developers not to fall behind schedule • Unify and regulate all property-related activities • Act as a forum for disputes • Encourage the adoption of international best practices • Develop mechanisms to deal with unfair practices Benefits (1) Real Estate Regulatory Agency, established in 2007 These initiatives and others being undertaken by the government are allowing Dubai to move towards incorporating international best practices and legal standards, helping to put both domestic and foreign buyers more at ease.

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