The UAE’s property landscape is in a state of flux. Even as prices rise by up to 35 per cent in some locations, the government is working hard to gain investor confidence. On one hand, property shopping is dominated by cash buyers, and on the other, by proposed mortgage regulations coming from the UAE Central Bank to protect consumers from over leveraged situations. We look at five trends that are affecting the way you shop for homes in the UAE.
1. Recovery
The market has repaid investor confidence. According to the Dubai Land Department (DLD), real estate transactions in the emirate were up 63 per cent year-on-year in the first quarter of 2013, reaching $12 billion (Dh44.08 billion).
“The residential market is seeing a strong recovery with average sales rates rising by around 25 per cent over the past 12 months. The majority of residential transactions have been for properties in established communities.
There are now also growing signs of demand for more affordable housing options in the emirate’s secondary locations,” Matthew Green, Head of Research and Consultancy, UAE, CBRE.
Frans Jan Burkens, Head of Consumer Banking, Commercial Bank of Dubai, attributes the growth to “increased economic activity, easier availability of mortgages, rise in expat inclination to buy rather than rent, among other factors.”
2. Cash buyers
Even though the property market is doing well, data tells us that a large number of buyers are cash buyers. Experts say that more than 75 per cent of Dubai’s real estate transactions are cash deals.
“The market remains highly liquid with around 80 per cent of all transactions completed in cash. This is being driven in part by the continued unrest within the region, with the emirate benefitting from its safe haven status, as it continues to witness a steady flow of capital from countries such as Syria, Egypt, Iran and Pakistan,” says Green.
While banks do not immediately benefit from cash buying, the trend is positive. “As per estimates and DLD data, around 50-60 per cent of buyers are making cash transactions, which is a healthy sign. This trend highlights the attractiveness and demand for Dubai real estate.
Dubai is emerging as a global tourist destination as well as a choice location for real estate investment and portfolio diversification strategies for wealthy people across the world. Given that many expatriates and high-net-worth individuals are investing in Dubai real estate, the cash component will continue to remain high,” says Rana Zeeshan Saleem, Head of Assets and KSA Retail Banking, Retail Banking Group, Emirates NBD. Local and international banks have tried to encourage greater mortgage participation by offering end users access to lower interest rates.
“However, the prevailing low loan to value ratios and the rapidly rising cost of Dubai’s homes are proving to be obstacles for many would-be homebuyers,” says Green.
Developers would welcome the possibility of mortgages being offered for off-plan properties as well, something that is not currently available.
3. Regulate my shopping
Whether it is to see the impact of the Real Estate Regulatory Agency’s (Rera) new regulations or the UAE Central
Bank’s mortgage cap, the market is poised in anticipation. Since both of these are on the cards, the results remain to be seen.
“The Central Bank’s mortgage law is yet to be properly implemented meaning financial institutions are still offering their own rates, which vary depending on the customer and the property being financed. However, it is clear that regulation of the local mortgage market is needed and is essential in order to avoid an occurrence of the widespread overleveraging by speculators that played a pivotal role in escalating off-plan sales prices prior to the last crash during 2008,” says Green, while underlining that the current growth phase is different with the majority of transactions completed in cash rather than through finance avenues.
According to law firm Hadeef and Partners, many regulations may be underway, including a draft Real Estate Investor Protection Law, which would see an increase in protection for purchasers.
The law firm also says, “Further activity may be seen in relation to the Jointly Owned Property Law, which will help ease some of the frustrations for property purchasers.”
In the long term, this can only be good. “Regulations by Rera and DLD are very good as they protect all stakeholders in the value chain, and regulate the overall real estate sector. Dubai will continue to see new developments and projects; thus a strong regulatory environment is helpful to maintain global competitiveness and market stability,” Saleem says.
However, not all recommendations are welcomed. “There are various fees and charges levied by DLD including registration fees, mortgage fees and transfer fees. An increase in these fees will increase property asking prices in the short term, and a resultant decrease in demand may eventually help control prices. We believe this measure
is not required and will adversely affect the competitiveness of Dubai. All real estate and mortgage fees should
be in-line with global norms, and any artificial price control measures will hurt the Dubai market,” says Saleem, reacting to the recommendation increased mortgage fees.
4. What’s my emirate?
inter-emirate daily commute is also being impacted, affecting decisions on where to rent or buy. September 1 saw the government’s deadline for those working in Abu Dhabi to live there. Similarly, with toll gates being introduced en route to Sharjah, real estate buying trends in the three emirates may be affected as those buying to live rather than to invest may change tack.
“While there are no official figures available at this time, it is clear that the [Abu Dhabi] government’s mandate on housing is having a positive influence on overall activity. This has not yet been sufficient to drive growth in the average market rate, but we are seeing fragmented growth in select developments, with 8 per cent rise in rental rates at Raha Beach and 4 per cent at Al Reef during the past six months,” says Green, who is predicting growth to occur before the end of the year, particularly in developments that offer access to Abu Dhabi and Dubai.
Experts say that the UAE resident is not one to be bothered by tolls and commutes when choosing a house to live in. Instead, factors such as quality and price have more of an impact. Real estate buying trends in Dubai, Abu Dhabi and Sharjah will be affected mostly by the kind of home a person needs, the location, money involved with buying it and whether the buyer’s focus is investment or living. Even so, says Saleem, “Rentals will see stability or a mild increase in Abu Dhabi following the [September 1] deadline. There is rising supply in the Abu Dhabi market as various projects are reaching completion and delivery.”
5. Bubble? What bubble?
Think there is a bubble. That is a just a term someone came up with in 2008,” says Miguel Guadalupe, COO, Pacific Ventures, a real estate developer. “It is normal progression that in any real estate market, prices go up and down. If I have less room the prices go up, with too many people fighting for fewer properties.”
However, surging property prices in Dubai have caused commentary by international institutions. The IMF’s UAE Country Report 2013, released in July, states: “While acknowledging that certain segments of the Dubai real estate market have been recovering fast, the Dubai government stressed that the exuberance of the pre-crisis period that led to the previous boom-bust cycle is unlikely to return as planned megaprojects will be executed in a gradual manner.
“Regulation related to mortgage lending, including caps on loan-to-value and debtservice-to-income ratios, will help mitigate real estate related risks, though the immediate effect on the residential real estate market will be limited.”
Not everyone agrees. In fact, the UAE Central Bank’s announcement for mortgage caps in 2012 caused an outcry among commercial banks. It’s in July 2013 that the board of directors of Central Bank took note of the latest developments regarding the draft of the Mortgage Loans Regulation, which had previously been referred to the concerned agencies for study and feedback, which then instructed follow-up.
Saleem recommends strong controls for new launch projects as speculative flipping of off-plan units creates artificial demand and price surge.