Real estate business is one of the most successful investments all over the world nowadays. However, its success depends on several factors such as location. The real estate business in the United Arab Emirates has been booming for a while now (Aladdin & Elbadawi, 2012). This follows two years of unsustainable growth surge. Nevertheless, the growth in the housing market for major towns in the region including Dubai and Abu Dhabi has been slow. This paper is a valuation report analyzing the internal rate of returns for the Dubai World Central commonly abbreviated as the DWC. During the analysis, the report looks at the internal rate of returns that have been calculated with respect to the real estate project in Dubai. The primary concern is to establish whether the internal rates of returns for the specific areas are consistent with the market conditions that are experienced in the United Arab Emirates at the moment (Unsworth, 2013). The Dubai World Central refers to a project plan underway and it is intended to be located around Al Maktoum International Airport, in the United Arab Emirates. The scheme aims at incorporating retail, hospital, office, residential, industrial and an airport.
According to the report, the calculation of the internal rate of returns is significant in that the internal rate of returns measures the performance of any given project, or a certain capital expenditure for a given period (Zabel, 2014). As such, the IRRs given indicate how well the DWC, with respect to the various cities within it, perform over time. In analyzing the IRR, the report considers the significance of the Residential City, Commercial City, Golf City, Dubai Logistics City, Dubai Logistics Staff Village, and Business Park.
Residential City
It is estimated that the residential city will be in a position of holding more that 50,000 people. This is an indication that a lot of development activities are expected in this city along with a variety of business avenues. In addition, considering that the location of the residential city is in the North East side of the Dubai World Center, it makes it suitable for any business and investment opportunity. The internal rate of returns for the Residential City within the Dubai World Central master scheme is targeted to be 13%. Taking the consideration of the fact that it is located in such a suitable place, the possibility of high rate of returns is not as high as for other regions within the DWC. As such, according to the trends regarding housing markets in Dubai, an internal rate of return of around 13% is consistent with the market conditions.
Commercial City
The planned location of the Commercial city is on the South Western side of the DWC. In calculating the internal rate f return for this city, the primary concern was on its growth potential. As such, the calculated internal rate of returns for the Commercial City within the Dubai World Central master scheme is targeted to average at 15%. Such a fraction is expected considering that the city would be best suited for commercial activities within DWC.
Golf City
The Golf City is situated on the southern part of the DWC. With several landmarks within the city’s vicinity, Golf City is expected to host a number of development activities. As such, a calculation of the internal rate of returns for the Golf City within the Dubai World Central master scheme is targeted at an average of 14%. This is in line with the increasing growth rate of the housing markets in Dubai. This is applicable considering that the marketing costs of AED are estimated to reach an annual amount of 500,000 with 1.75% sales revenue and total purchaser’s costs.
Dubai Logistics City
The real estate sector in Dubai has been recovering following the past global economic crisis (Saidi, Prasad, Villani & Roi, n.d). The calculated internal rate of returns for the Dubai Logistics City within the Dubai World Central master scheme is found to be around 8%. Such a low IRR is expected considering the high effects of the economic crisis.
Dubai Logistics Staff Village
The valuation report found the internal rate of returns for the Dubai Logistics Staff Village within the Dubai World Central master scheme to be around 10%. The staff village is centrally located within the Dubai Logistics City. As such, a high internal rate of returns is expected considering the village’s suitable location for business opportunities and other developments. For this reason, the calculated internal rate of returns for the Dubai Logistics Staff Village is applicable.
Business Park
The internal rate of returns for the Residential City within the Dubai World Central master scheme is targeted at 12%. However, the report found the discount rate to be 11%. This implies that the IRR does not make sense considering that the Business Park has a high potential for development and business opportunities. According to Erickson (2012) such a scenario indicates that the Business Park does not have any potential to perform well over the given period of the project.
Reference List
Aladdin, A., & Elbadawi, I. (2012). The global economic crisis and consequences for development strategy in Dubai. New York: Palgrave Macmillan.
Erickson, J. (2012). Market Microstructure and Real Estate Returns. Real Estate Economics, 23(1), 85-100.
Saidi, N., Prasad, A., Villani, F., & Roi, T. (n.d). Dubai World Central and the Evolution of Dubai Logistic Cluster. SSRN Journal, 3(1), 5-10.
Unsworth, R. (2013). Urban Design in the Real Estate Process. Housing Studies, 28(2), 369-371.
Zabel, J. (2014). A Dynamic Model of the Housing Market: The Role of Vacancies. The Journal of Real Estate Finance and Economics, 2(2), 8-10.