Don’t let ‘hindsight bias’ blind you on Dubai realty’s possibilities

Dubai: The Dubai real estate sector, as with all maturing markets, can be changeable. The pressure of oversupply and the impact that this has on pricing is a common talking point among the residents and property professionals alike.

Discussions, however, of this kind rarely take into account the complex and interconnected nature of the real estate industry. Moreover, they fail to consider the many opportunities that can arise from changes in market dynamics. Indeed, oversupply is a challenge, but this has seemingly had a limited effect on market activity.

In fact, transaction values and volumes have grown since the start of this year. According to data released by Dubai Land Department, the real estate market recorded 69,000 property transactions worth Dh285 billion in 2017, against Dh275.8 billion in 2015 and Dh268.7 billion in 2016.

These figures demonstrate that the slight downward pressures on pricing last year actually brought more people to the marketplace. The ratio between price and income is being rebalanced. And, this is benefiting those whose return-on-investment has actually been improving over the past three or four years.

This trend is continuing, wherein the first-half of 2018 recorded strong growth in transaction values and volumes. While residential sale rates may have decreased slightly, this hasn’t dented the spirit of developers who continue to offer appealing payment plans and incentives. Consequently, this has attracted a large number of new and first-time buyers who previously found access to properties within their price range unavailable or unsuitable.

The prime office sector is another key driver in Dubai real estate. Demand is stronger than ever for well-located and high-quality space.

The $1 billion (Dh3.67 billion) development, ICD Brookfield Place, under construction in DIFC, is an example of such sought-after office space. It also highlights the need for innovative workspace in line with best standards globally. The 54-storey building will contain more than 900,000 square feet of grade A space and will represent one of the most important conceptual institutions in the GCC, with an advantage of scale over other regional financial centres.

While Dubai’s office market is currently witnessing an oversupply of around 30 per cent, this is, in fact, due to large strata office stock that has never come into the marketplace. Moving forward, old and strata office buildings, with limited accessibility and amenities, will continue to face stiff competition from high-quality office accommodations.

One should not forget the effects that the low oil price and weakening global economy are having on businesses in the region. Many international organisations have resorted to streamlining their operations, resulting in the consolidation of office space. The sector is also witnessing a shift towards the signing of longer term leases (five to 10 years), which highlights the continued need for high-quality space that ensures an efficient working environment.

Another trend in the commercial sector is workplace flexibility and wellness, as companies strive to offer the optimum working environment to their workforce. A real opportunity exists for developers who are willing to invest, not only in high specification buildings, but those which also incorporate flexible workspace floorplans that promote wellness in the workplace and amenities such as gyms and F&B options.

The Expo 2020

While many industry professionals question how Dubai’s property sector will look post Expo 2020, the long-term benefits of hosting a global event of this scale will be significant for the overall economy, including the property sector. As the emirate continues to invest heavily in expanding its infrastructure network beyond its city centre, this will give rise to the development of new neighbourhoods and business centres in areas such as Dubai South — further unlocking new investment opportunities.

Furthermore, Expo 2020 is not only likely to enhance the attractiveness of Dubai as a global base for foreign companies looking to gain foothold in the region, it will open up the country to millions of first-time visitors. Hence, in this sense, Expo 2020s power as a marketing tool should not be underestimated, nor should its ability to reinvigorate the real estate market across sectors ranging from residential to commercial, retail to hospitality.

This creation of a business hub underpinned potentially by foreign companies also opens up institutional investment opportunities. This hub would create potential opportunities for capital seeking long term strong secure income backed investment assets.

We are living in uncertain times. And as such, it is important to avoid “hindsight bias” at all costs, and rather look for the opportunities as opposed to focusing on unavoidable challenges.

Dubai’s government has been, and will continue to be, one of the main driving forces behind the real estate growth. During the past 12 months the government has announced a number of measures to stimulate growth, including the decision to allow 100 per cent ownership of UAE-based business by foreign owners, the provision of dual licensing and the reduction of tariffs for factories.

These measures do two things — firstly, they tell the world that the government here is ready to act swiftly and decisively to address issues that stall progress; and secondly, those actions bring meaningful changes which further advance the emirate towards its long-term vision.

For instance, the government’s decision to ease norms for business ownership and visas is not only going to attract new businesses, talents and professionals in to the emirate but will also encourage many entrepreneurial ventures and start-ups to flourish, thus driving future growth.

The road ahead is never smooth in any real estate market — Dubai included. New supply, coupled with regional challenges will continue to put pressure on rental and sale prices, although the rate of decline has begun to decelerate.

To weather the storm, it is important that the real estate sector identifies important opportunities for continued growth, whilst exercising caution as required.

— Nick Maclean is Managing Director, CBRE M. E.