The world-topping 30 per cent price increase in Dubai’s freehold property during 2013 has since dissipated, after two cooling measures were introduced to the market. Although both, the doubling of transaction fees to 4 per cent and the tightening of mortgage to an average of 70 per cent, were designed to create a softer landing, the thuds have been heard.
Dubai Land Department data reveals that in 2014 the value of property transactions fell
7.6 per cent against 2013’s Dh218 billion. Knight Frank reported that sale transactions across its mainstream residential properties dropped 41 per cent from the previous year.
At the beginning of the year, Standard & Poor’s said the property market would be affected by oversupply, oil prices and cautious investors, leading to a price fall of up to 20 per cent through 2015, depending on location. JLL has said selling prices will decline 10 per cent and rents will slump as 25,000 homes are added to the market. According to Knight Frank’s Prime Global Cities Forecast, prime property prices in Dubai will slip by 5-10 per cent.
Moody’s Investors Service said last month that it believes prices could fall from 10-15 per cent this year, but that this market slowdown is positive in the long run and helps alleviate overheating. Also in March, Tasweek Real Estate Development and Marketing reported that property prices in Dubai had dropped by an average of 2 per cent in January and February compared to the last quarter of 2014, and transactions had slowed by 20 per cent in January and 17 per cent in February compared to the same months in 2014.
“Market movements were steady and deliberate across the UAE during the first quarter, with most developers adopting a wait-and-see attitude that we expect to carry over in the coming couple of months,” Masoud Al Awar, CEO of Tasweek, says. Tasweek points to positive indicators and new opportunities such as smart living and affordable prices. Contradicting agency predictions, it expects to see growth. “We are optimistic that the local industry will post a strong performance this year.”
This note was also reiterated by industry veterans attending the International Property Show early this month, with many saying there is no price decline. “Based on our estimates, February transactions — for off-plan and completed — would be around Dh2.37 billion, against Dh2 billion or so for January,” Chandrakant Whabi, CEO of Acrohouse Properties, told Gulf News. “That does compare well with the sub-Dh2-billion volumes recorded in both November and December.”
Is it really a buyers’ market?
Understandably, these mixed messages are confusing for people who have a genuine interest in investing in Dubai’s property market. But while the bullish and bearish chatter gets loud, there are those who stay grounded against the reality of their everyday dealings in realty – and their insider insights hold weight. Think of it as the calming voice of animal whisperers who know exactly what they are dealing with, and they are calling this a correction. These voices serve to cut across the clamour.
“There has been a very small correction, and some constraints on finding new buyers over the past 12 months,” says Dr Sharad Nair, Managing Director, Apex Advisors DMCC, an investment advisory firm. “But Dubai’s property market is now reaching levels of maturity and will sustain a paced growth unlike the early days. With rental yields ranging from 7-8 per cent in prime areas, the returns are positively healthy in comparison to bank deposits for my money.” Property markets sometimes behave like stock markets, hence you see investor hype on certain new projects versus lack of interest on ready-to-move-in properties, says Nair, who urges planning as the foundation for every purchase. He cites the example of friends who bought residential and commercial properties when prices were at their peak in 2007. “With diligent financial planning, they also purchased additional distress properties in 2009 and sold them all for a brilliant delta in 2012 and 2013.”
Jamie Gray, Head of Sales and Operations, Fortune 5 Real Estate, says on his blog that although average prices have decreased for three consecutive quarters, there is still appetite from investors with a mid- to long-term strategy and end users who see purchasing as an attainable alternative to renting. “The price drops have unlocked additional demand in the market, which is healthy,” he says. “It is also important to note that ready property prices are still somewhat overinflated, and the gap between seller and buyer expectation is too wide.”
Gray believes this is good news because the gap is decreasing, and although there may be slight further reductions in price, this should only have positive repercussions because it will unlock additional demand. “A buyer’s market simply means there is more choice available. With a stable ready property market and the continuous influx of off-plan projects and favourable payment plans, buyers now have that choice,” he says.
Other facts to factor in
Dubai’s realty is influenced by multiple factors — regional geopolitical events, slowdown of oil exports, strengthening of the dollar-pegged UAE dirham against the euro and rouble, and the purchasing power of international investors, led by the powerful trio of Saudi, Indian and Iranian buyers.
Indians have historically been the most active expatriate investors in Dubai, and this is not likely to change much.
Knight Frank’s The Wealth Report 2015 explains that $1 million (Dh3.67 million) can buy 145 square metres of prime property in Dubai, and mere 96 square metres in Mumbai. This attractive proposition is substantiated by online portal Bayut’s recent research — 60.8 per cent of Indian survey participants said they have been actively looking to buy property in Dubai over the past three months, among which 82.86 per cent were interested in apartments.
Saudi investments in Dubai’s real estate crossed Dh22.7 billion in 2014, according to organisers of the International Property Show, making them second-largest and a very strong investor segment. “Due to the higher transfer fees and mortgage caps, Saudi investors find the Dubai property market well regulated and an ideal location for owners, tenants and landlords,” explains Josine Heijmans, Exhibition Director of Strategic Marketing & Exhibitions. “Therefore, it is natural to expect a surge in demand from them during 2015.”
Iranians were avid investors through most of the past decade, until sanctions put a squeeze on their buying power. With local realtors now claiming to receive several interested calls, Iranians seem to be reacquainting themselves with Dubai’s real estate. “These are definitely early days, but if the sanctions are lifted in full, Dubai’s real estate will be a clear and immediate winner from Iranian fund flow into the UAE,” Juwaad Beg, CEO of Al Madina Al Raeda Real Estate told Gulf News.
To match this mood, developers that have the ability to control and phase out supply are expected to remain resilient throughout this year.
In the wake of increasing interest and incessant supply, home-based customers must weigh the possibility of marginal price reductions against market glut — and gluttony.
No one really expects a repeat of the crash of 2008-10 when properties lost about half their value, but caution must remain a watchword. Nobody thought it would happen then either, but it did.
