How Russians build up Dubai and sell real estate in the Emirate

According to experts, in 2022, every second developer from Russia was interested in entering the UAE market. But only a few have purchased construction sites so far

In 2022, the UAE became the leader in demand for foreign real estate from Russians, second only to Turkey. Following the buyers, Russian developers began to be interested in the UAE real estate market. News began to appear more and more often that a large developer from Russia will build in Dubai, and a Russian real estate agency has opened an office in the Emirates.

Together with experts, we are looking into what attracts Russian developers and real estate agencies to the UAE today and how long this interest will last.

Russian interest in Dubai

Experts note the increased interest of Russian developers in the Dubai market and the UAE as a whole. Immediately after February 2022, most of the Russian companies that were engaged in European or Moscow real estate, in particular the construction of new buildings, became interested in the Dubai market, experts interviewed by the editorial board of RBC-Real Estate said. Among Russian developers there are also large companies that are in the top 10 in terms of construction volumes in Moscow.

According to Kalinka Group estimates, every second Russian developer started studying the UAE market in 2022. "Of course, not everyone will enter the market. But there are already developers who have purchased sites here. Some developers are now looking for partners for their projects," said Alexander Shibaev, CEO of Kalinka Middle East.

"Only in the first quarter of this year, three Russian development companies approached us with a request for real estate market analytics in Dubai and the UAE. All of them have already purchased plots for future projects. Two projects are developing a product line, and the third company has already started construction and ordered analytics to monitor prices and sales volumes of competitors," Intermark Real Estate partner Irina Mosheva said.

NEV REAL ESTATE has also received several requests for market advice. "Now we also have a lot of requests from small developers from Russia who are studying the market, collecting information and pricing," said Ekaterina Nikitina, founder of the foreign real estate company NEV REAL ESTATE. "Some are considering investments in projects together with local players, and some are considering independent entry into the market. Developers are interested not only in Dubai, but also in other emirates," she added.

Such companies as GC "Airplane", GC "Pioneer", VOS'HOD, Level Group, O1 Properties have already announced plans to enter the UAE market, brokers and developers working in this market told RBC-Real Estate. Experts also note interest in the UAE market among small developers and private investors. Some developers have already purchased sites, others are still choosing projects or looking for partners, brokers say.

"Pioneer Group has acquired a 0.6-hectare plot between the Dubai Marina and Palm Jumeirah districts. The developer plans to build a premium residential complex with 45 floors. The company plans to implement two or three more projects in Dubai this year," Intermark Real Estate partner Irina Mosheva said. The press service of the Pioneer Group of RBC-Real Estate confirmed the data on the availability of a construction site in Dubai, but did not disclose details. Another Orange Group from St. Petersburg, which became the owner of a complex of residential apartments with an area of about 15 thousand square meters. in Jumeirah Village Circle in Dubai, Irina Mosheva continued. At the beginning of 2023, the Russian company VOS'HOD announced the construction of a project in the emirate of Ras Al Khaimah, which will include a hotel and Nobu branded residences.

At the same time, the UAE market is not new for developers from Russia: there are companies that have been present on it before. For example, St. Petersburg-based Becar Asset Management has built You&Co Dubai. In the near future, the company plans to bring new projects to the market. "The plot for the construction of a coliving is located in the Al-Satwa district in Dubai. High-rise hotels (48-60 floors each) are planned to be built in the Business Bay area. Investments in coliving are estimated at $30 million, in hotels — at $200 million. It is planned to attract these funds from a pool of private investors from Russia, Belarus and Kazakhstan. And if the construction of the koliving will take two years, then the hotels will take about four years," Alexander Sharapov, the owner of the Vertical hotel brand and Becar company, told the editorial board.

Yekaterinburg developer Forum Group has built and completely sold an elite complex of villas on the Dubai island of Palm Jumeirah, Ekaterina Nikitina cites examples.

The consulting company RRG is a partner of the development company Segrex Development. Her team participated in the implementation of 9 projects in Dubai, and also successfully independently implemented two residential complexes — in 2015, the Astoria Residence project (11 thousand square meters) was commissioned, in 2022 — Nicholas Residence (7.7 thousand square meters). This spring, sales of one of the 3 projects — Stonehedge, which will include 482 apartments (about 65 thousand square meters), started, construction is scheduled to be completed in 2025. "Segrex Development is a full—fledged Russian-speaking developer in the UAE, also acts as a fee developer at all stages of the project implementation. Now the company is implementing three projects in partnership with major Russian developers from Moscow and St. Petersburg," says Denis Kolokolnikov, partner of the development company, managing partner of RRG.

Despite the high interest of Russian developers, their share in the UAE market is insignificant. The main part of the development market is distributed between state developers of the UAE and other companies that have been working in the country for many years, and the share of Russian developers is now minimal, Alexander Shibaev explained. The share of Russian investors is small and does not have a significant impact on the market, Alexey Novikov, Managing Partner of NF Group, confirmed.

Russian realtors in the UAE

In addition to Russian developers, the UAE real estate market began to actively develop real estate agencies and open their representative offices in the country. For example, last year, Webster, Floors, Nikolliers, NF Group, Kalinka Group, Intermark Real Estate, Nika Estate, RRG and others followed the Russian buyers.

In general, real estate agencies with Russian roots work in the expensive segment, says Konstantin Kovalev, CEO of Webster. According to him, "only the lazy one did not enter this market" — one way or another, almost all major Russian brokers work here. "Not everyone organized their own companies, some work as individuals and have their own commission for clients, acting through licensed agents. And this flow has not ended yet, a number of Russian real estate agencies will still announce their exit plans," the expert predicts.

Realtors note that there are companies with Russian origin in the UAE that have been on the market for decades. Among such companies with a history and a large staff of brokers are Dacha Real Estate (in the Dubai market since 2004) and Metropolitan (since 2008). These are successful companies in the local market with a large staff, Konstantin Kovalev notes.

According to Irina Mosheva, the reorientation of real estate agencies to the UAE is connected with the desire of companies to enter the growing market — in 2022, the volume of transactions in Dubai exceeded the indicators of 2021 almost twice, the indicators of 2020 — three times. According to Intermark Real Estate estimates, in 2022 in Dubai, about 3.3 thousand agencies are officially registered and have a license to sell real estate. This is 76% more than in 2021. "With the growing demand of Russians for the purchase of real estate in Dubai, clients require the services of agencies, professionals who will help to purchase objects, conduct a transaction. Foreign markets have their own nuances, a citizen of another country needs to understand the peculiarities of legislation, the subtleties of the real estate market. This is exactly what agencies with Russian origin are helping with," said Intermark Real Estate partner.

The remuneration of real estate agencies in the UAE is considered high, but they are comparable to Russian ones. For example, in Dubai, the commission of real estate agencies from developers ranges from 2% to 7%, on average 4-5%. Large players, such as Emaar, for example, can pay 2.5–3% for projects that are very popular in the market. In Russia, the commission is paid depending on the segment, on average it ranges from 2% to 5%, says Ekaterina Nikitina. "The difference in the market commission is insignificant, and it cannot be said that Russian agencies have shifted to the UAE because of this. The main reason was the shift in the interest of some Russian buyers in the UAE, so many real estate companies diversify their risks and open offices in Dubai, continuing to work with Russians in another market," the expert added.

What attracts the UAE market

The UAE and Dubai real estate market attracts Russian developers with high demand and active construction. For example, in 2022, more than 86 thousand housing sales were registered in Dubai, which exceeded the previous record of 80 thousand in 2009. Last year, real estate worth about 208 billion dirhams ($56.6 billion) was sold, which is almost 80% more than in 2021. Among foreigners, Russians have become the leaders in buying real estate in Dubai, while housing sales in Moscow and in Russia as a whole have significantly decreased. "In 2022, the Moscow market of new buildings has significantly decreased, so companies are reorienting to more dynamic areas, including foreign ones, where demand and the volume of commissioned facilities are growing," Irina Mosheva explained. "Now there is an active construction in Dubai, the market is developing, it also attracts Russian developers," she said.

The main advantages for a Russian developer of projects in the UAE are high demand for real estate, and not only from Russian buyers, agrees the CEO of Kalinka Middle East. According to him, this guarantees Russian developers a sufficiently large revenue while the Russian market is stagnating. "Russian developers are looking for ways to diversify their portfolio. For some companies, entering the international market provides for a global development strategy, for others it is exclusively a story about money," the expert noted.

"Dubai today is the same international financial center as London, New York and Berlin. In fact, it is a multinational capital of the financial, economic and cultural development of the XXI century with a clear legal system based on British law," says developer Alexander Sharapov. — Therefore, we not only decided to develop in Dubai, but also moved the headquarters of the Vertical Hospitality hotel chain here. The decision to move the head office was made due to the fact that Dubai residency provides great opportunities for international development. Having been working in this market for eight years, we are well—versed in it and understand how to achieve a developer yield of 20% per annum, and a rental yield of 6% in dollars."

Investors in Dubai are attracted by high profitability — from 30% to 50% with an average implementation period of a development project of 2.5 years, says Denis Kolokolnikov, partner of the development company Segrex Development, managing partner of RRG. As a rule, investors buy lots from the developer on favorable terms at an early stage of construction, and resell them to the final buyer before commissioning. "Installments from the developer are widespread, in which investors make only 20% at the conclusion of the contract and then pay half of the cost of real estate in equal payments, and the second half is paid already at the time of commissioning. In the rental business, you can earn 5-6% per annum in dollars, plus owning real estate can be the basis for obtaining a residence permit for both the owner and his family members," the expert says.

According to Denis Kolokolnikov, Dubai offers full transparency in doing business, absence of corruption, high technology (electronic transactions) and unique tax legislation: 0% — personal income tax, 0% — property tax, 0% — VAT on the sale of housing (5% VAT paid to contractors is reimbursed), 9% — corporate income tax (from the second half of 2023).

Investors and developers are also attracted by the convenience of doing business, ready-made construction sites with ready documentation and networks connected to the site. "Master developers form a strategic plan for the development of a land plot with already approved TEPS. All real estate transactions, including leases, are registered with the Dubai Land Department (DLD), information is publicly published, standard contracts, sales at the construction stage are conducted using escrow accounts. All apartments are rented with finishing, furniture and an equipped kitchen, and the cost of housing and communal services includes parking spaces and infrastructure of the residential complex — swimming pools, gyms, game rooms, etc.," explains Denis Kolokolnikov.

Russians' exploration of the UAE market will continue

Experts predict a further increase in interest in the UAE market from Russian developers and real estate agencies. "According to our estimates, further development of the UAE housing market will continue. First of all, this is due to the fact that the Moscow market is shrinking, and companies need to think about their development — apply their expertise, look for directions for further growth," Irina Mosheva believes. This applies not only to companies based in Moscow, we are also talking about companies in St. Petersburg, which also open offices in Dubai, she said.

A similar point of view was expressed by Ekaterina Nikitina. "The demand for real estate remains, so we expect further development of the UAE housing market by Russian developers. In addition, foreign investors from different countries are buying real estate in Dubai, which allows Russian developers to diversify risks," she said.

According to the managing partner of NF Group, further development of the UAE market by Russian companies will depend on the success of the projects already announced. "There is every reason to believe that Russian developers have a chance for successful development in this region. Nevertheless, their share will remain insignificant, since historically local companies, as well as investors from India and Pakistan, predominate there," he said.

Although real estate prices in the UAE have grown significantly over the past year, there is no question of overheating of the market, demand is still high, says the CEO of Kalinka Middle East. "If the demand from the Russians has decreased slightly, then from the residents of China, Pakistan, the UK and Europe as a whole continues to grow. Therefore, if we are talking about the entire Dubai market, so far the dynamics of transactions is such that 2023 may be even better than 2022," he concluded.