Unitas Consultancy (A GLOBAL CAPITAL PARTNERS GROUP COMPANY) Q1 2016

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The Theory of the Leisure Class: A Look into Hills

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1 Office No. 103, The Palladium, Plot No. C3, Jumeriah Lake Towers, , UAE Executive Summary

• A look into the most prestigious community in Dubai, , reveals that its plot prices have out-performed any other real estate product by a factor of nearly 3x since the inception of Freehold. These staggering returns that have accrued to investors and end-users are inline with other blue-ribbon communities around . For instance Beverley Hills has appreciated by 50%, whereas the the average US price index has remained flat lined over the last 10 years.

• A min-max analysis of Emirates Hills reveals that the gap has doubled in transacted villas over the last 5 years. This widening of the gap can be attributed towards the underlying properties that have been constructed in this community over the years. Moreover it illustrates the demand that has and continues to increase for “bespoke” villa communities with a gilded address code.

• A granular break-down of the community reveals that majority of the villas are distributed between Sector E and P, which accounts for nearly 1/3rd of the entire supply. Moreoever, a price analysis of listings show that Sector R has the highest price per square foot rate followed by W and V. Whilst this breakdown may somehow shed some light on the relative “premium” of these sectors, the vastly differing sizes of the villas in each of these areas plays a far larger role in the listed and transacted prices.

• A transactional activity analysis of the community over the last 5 years reveals that cash transactions accounted for 80% of activity. However, in the last 18 months, there has been a spike in ‘other transactions’ (which include refinances), which have coincided with the crash of oil prices. Due to the liquidity crunch prevalent in the market, we opine that this trend will continue to grow as homeowners seek to monetize the substantial home equity built in their villas.

• The recent option of ultra-luxury villas, where you can build your own façade by Emaar has been in the form of Dubai Hills. A comparison between Dubai Hills and Emirates Hills plot prices, shows that he latter trades at roughly 1/3rd the price. An analysis of Emirates Hills during its development stages reveals that prices accelerated dramatically as surrounding infrastructure began to roll out. We opine that the same phenomena will transpire in Dubai Hills as surrounding infrastructure comes online. It will be likely be accelerated by demand from the upper strata that “missed the bus” on the price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena. This explains the proliferation of high income communities such as al Barari and Pearl which offer similar product. Contents

1 A Macro look into Emirate Hills

1 A Granular look Inside

2 Transactional Analysis

2 Emirates Hills and Dubai Hills

A Macro look into Emirate Hills

"The bigger the risks, the better off you are. Otherwise you're just boring.” – Billie Joe Armstrong

4 Emirates Hills Land has Appreciated More than 10 times since its Launch

Return on Investment by Product Emirates Hills Plots Launch and Market Price (Aed/Sqft) 1600% 1400 UNITAS UNITAS 1400% 1200 1200% 1000 1000% 800 800% 600 600%

400% 400

200% 200

0% 0 Springs 4m JBR Studio Emirates Hills Launch 2015 Villas (Plot)

A price analysis of launches in the first cycle, reveals that Emirates Hills plots out-performed any other real estate product by a factor of nearly 3x. Whilst this comparison is of ready units against land prices, it serves to highlight the staggering appreciation that has accrued to investors in this blue ribbon community, far outpacing realized returns throughout the rest of the city since the advent of freehold in 2002.

This appreciation at the trophy end of the market has been in sync with similar spikes witnessed in other parts of the world, where such premium gated communities have been launched at the upper strata of the market. Beverly Hills Outperforms the Rest of the United States

Price Index (Beverly Hills Vs US National Average) Price Index (Emirates Hills Vs Dubai) 180 180 Price Index Beverly Hills US Price Index Emirates Hills (Listed Price Index) Dubai Price Index 170 160 160

140 150 140 120 130 120 100 110

80 100 Zillow 90 REIDIN

60

80

2011 2012 2013 2014 2015

Oca 2012 Oca Oca 2006 Oca 2007 Oca 2008 Oca 2009 Oca 2010 Oca 2011 Oca 2013 Oca 2014 Oca 2015 Oca

Tem 2006 Tem 2007 Tem 2008 Tem 2009 Tem 2010 Tem 2011 Tem 2012 Tem 2013 Tem 2014 Tem 2015 Tem

The above chart depicts the growth rates of Beverly Hills against the US price index. Since 2006 the US market has remained flat, while Beverley Hills has appreciated by 50%. This highlights the outperformance of ultra luxury properties against the city wide performance. The price behavior in this instance is synonymous with that being witnessed in Emirates Hills.

More interestingly, a comparison of Emirates Hills against the city wide index since 2011 suggests only a marginal outperformance of the former, implying that as options have opened up for end users and investors for similar blue ribbon communities recently, the period of price outperformance may be coming to an end. We opine that Investors will increasingly shift their money flows towards upcoming blue ribbon communities, thus arbitraging away the difference that currently exists.

Min-Max Analysis of Transacted Prices in Emirates Hills

Min-Max of Emirates Hills Transacted Prices 100.000.000,00 REIDIN 90.000.000,00

80.000.000,00

70.000.000,00

60.000.000,00

50.000.000,00

40.000.000,00

30.000.000,00

20.000.000,00

10.000.000,00

0,00 2010 2011 2012 2013 2014 2015

A min-max analysis of transacted prices reveals the the gap has doubled in the last 6 years. The widening of the gap is a function of the large differences in the underlying properties that have been constructed in this community over the years; it further serves to illustrate the demand that has and continues to increase for “bespoke” villa communities with a gilded address code. Such variations are the norm in communities that develop organically, as opposed to being constructed by a single master developer. A Granular Look Inside

“The quasi-peaceable gentleman of leisure, then, not only consumes of the staff of life beyond the minimum required for subsistence and physical efficiency, but his consumption also undergoes a specialization as regards the quality of the goods consumed” – Thorstein Veblen

8 Break-Down of Emirates Hills Supply Structure

Emirates Hills - Sector E 55

26 Emirates Hills - Sector H 6 204 Emirates Hills - Sector HT

70 Emirates Hills - Sector J

Emirates Hills - Sector L

Emirates Hills - Sector P

Emirates Hills - Sector R 105 Emirates Hills - Sector S 61 Emirates Hills - Sector V 31 51 13 Emirates Hills - Sector W

Emirates Hills is bifurcated into 10 sectors, where sector E and P account for approximately one third of supply. The 622 villas sizes vary from 10,000 too 45,000 square feet. The community is spread across lakes interspersed with a golf course, and values of differing villas are based on location within the community, although transaction values for the entire sector remains at a significant premium to the rest of the city because of the embedded premium that has been built into the address. Listed Prices of Villas by Sector

Listed Prices by Sector (2015) 3.800,00 REIDIN 3.600,00 3.546,10

3.400,00

3.200,00 3.059,86 3.000,00 2.944,40

2.800,00 2.716,94 2.598,00 2.591,22 2.600,00 2.573,52 2.600,00

2.400,00

2.200,00 2.125,50

2.000,00 Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills Emirates Hills - Sector W - Sector V - Sector S - Sector R - Sector P - Sector L - Sector J - Sector H - Sector E

A granular analysis by sector of listed prices reveals that Sector R has the highest price per square foot rate followed by W and V. Whilst this breakdown may somehow shed some light on the relative “premium” of these sectors, the vastly differing sizes of the villas in each of these areas plays a far larger role in the listed and transacted prices. In point of fact, whilst there is a relative premium for golf and lake frontage villas, individual nuances of each villa seem to be the predominant weightage in determining the overall value of the price. Transactional Analysis

“Life is made up of a series of judgments on insufficient data, and if we waited to run down all our doubts, it would flow past us” - Learned Hand

11 Transactional Break-Down of Emirates Hills

Transactional Activity by Type 100% Cash as a % of Total Mortgage as % of Total REIDIN 90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 2010 2011 2012 2013 2014 2015

The above charts depicts a granular transactional analysis of the Emirate Hills area, illustrating that the bulk of the transactions (upwards of 80%) have been on a cash basis. However, we opine that this trend has already started to shift, with the surge in refinancing's, as illustrated in the next slide, a trend that will likely continue, as end users seek to monetize the substantial home equity built in. Spur in Refinances and ‘Other types’ of Transactions as prices decline

‘Other Transactions’ in Emirates Hills 7 120,00 REIDIN Others WTI 6 100,00

5 80,00 4 60,00 3 40,00 2

1 20,00

0 0,00

15/05 15/09 16/01 10/01 10/03 10/05 10/07 10/09 10/11 11/01 11/03 11/05 11/07 11/09 11/11 12/01 12/03 12/05 12/07 12/09 12/11 13/01 13/03 13/05 13/07 13/09 13/11 14/01 14/03 14/05 14/07 14/09 14/11 15/01 15/03 15/07 15/11

The crash of oil prices over the last 18 months has lead to a liquidity crunch in the region, which has coincided with a spike in ‘other’ types of transactions, the predominant one being attributed to ‘refinancing's’. In order to raise liquidity the fall in oil prices in Dubai therefore appears to be a reasonable proxy for liquidity conditions, and the surge in refinancing reflect the market response to monetize the “home equity” component that has become embedded in this community. Emirates Hills and Dubai Hills

“Look back over the past, with its changing empires that rose and fell, and you can foresee the future, too”- Marcus Aurelius

14 A comparison of Plot Prices of Dubai Hills and Emirates Hills

Plot Prices by Community (Highs and Lows) 1600 UNITAS high 1400 low 1200

1000

800

600

400

200

0 Dubai Hills Emirates Hills

A min-max analysis of plots in both communities reveals that Dubai Hills plots trade close to 1/3rd the prices of Emirates Hills. This reflects the lack of development of the former, and as it develops, we opine that there will be a narrowing of the price gap between the two communities. Dubai Hills Will Mirror the Price Action of Emirates Hills?

Current Supply Structure (2002-2015) 1600 UNITAS Emirates Hills 1400 Dubai Hills 1200

1000

800

600

400

200

0 Launch Partially Developed Developed

The development of a community influences price action. The further the community is along its infrastructure roll out the higher the prices will escalate. This trend can be witnessed in the development of Emirates Hills. We opine as Dubai Hills begins to roll-out its ancillary infrastructure, prices will begin to trend upwards, mirroring the trajectory of Emirates Hills. This will likely be accelerated by demand from the upper strata that “missed the bus” on the price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena partly explains the rise of other blue ribbon upper tier communities such as Jumeirah Pearl, where increasingly bespoke options are being made available for the end user in terms of constructing their own villa. Dubai Hills Estate Following Same Trajectory as Emirates Living

Emirates Living Dubai Hills Estates

Number of Prices Number of Prices Community Type Community Type Units Aed/Sqft Units Aed/Sqft

Emirates Hills 622 2,500 Mansions Dubai Hills 520 1,700 Mansions

Meadows 2,162 1,580 Villas Sidra - 1,100 Villas

Springs 4,730 1,167 Townhouses Maple 610 1,000 Townhouses

Greens 3,245 1,322 Low-Rise Park Heights 700 1,100 Low-Rise

Views 3,340 1,600 High-Rise

REIDIN

The roll out of Hills Estates is mimicking that of Emirates living. Both communities share a similar structure of the master plan with the type of units.

However, In each instance the launch price of a Dubai Hills Estate projects is lower than the current prevailing prices of its counterpart in Emirates Living, making the former an attractive buy for investors and end-users. Conclusions A Macro Look into Emirates Hills A Granular Look Inside Since the launch of Emirates Hills plots prices Emirates Hills consists of 622 villas, spread over 10 have increased more than 10 fold, out performing sectors. Sector E and P, account for nearly 1/3rd of any other real-estate asset in Dubai. the entire supply

Emirates Hills plot prices have Similar blue-ribbon communities, such as A granular analysis by sector of listed prices reveals out-performed any other real Beverley Hills, have had superior growth rates that Sector R has the highest price per square foot estate product by a factor of compared to the US average price Index by 50% rate followed by W and V. nearly 3x since the inception of in the last 10 years. Freehold W hilst there is a relative premium for golf and lake A min-max analysis of transacted villa prices in frontage villas, individual nuances of each villa seem Emirates Hills reveals the the gap has doubled in to be the predominant weightage in determining the the last 6 years. The widening of the gap is a overall value of the price. function of the large differences in the underlying properties that have been constructed in this community over the years

Transactional Analysis Emirates Hills and Dubai Hills

4 /5th of the overall transactional activity can be A comparison between Dubai Hills and Emirates attributed towards cash buyers over the last 5 years Hills plot prices reveals the latter trades at nearly 1/3rd the price to the former. However, as the market faces a liquidity crisis a The bulk of the transactions surge in ‘other transactions’ have transpired. We opine as the surrounding infrastructure of (upwards of 80%) have been on Refinances account for a certain portion of these Dubai Hills begin to come online, plot prices will a cash basis in Emirates Hills transactions . begin to accelerate, mimicking the trajectory of Emirates Hills. We opine as liquidity in the market has tightened, home -owners have refinanced their homes to This price acceleration will be further exuberated monetize the cash component of their villa. by the upper strata that “missed the bus” on the price and development trajectory of Emirates Hills, and this ‘me-too’ phenomena

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