Realtor Harry Tregoning has had a busy week, with more phone calls and show-arounds than has been the norm this year. “Fair to say we’ve had increased interest in apartments in Dubai over the past weeks,” he says. “The villa market, in particular, is pretty busy, and it’s difficult to find villas in some areas, but apartments are also seeing some traction.”
The managing partner of Tregoning Property has seen first-hand the ups and downs in the emirate’s real estate market. “Certainly, in the wake of COVID-19, Dubai is seen as a very safe place at the moment, and many people would rather be here than in their home country,” he said. “The city remains attractive for people to come and live and work here.” Dubai real estate has been hit by softening prices and an oversupply of new units for some time now, but the impact of the coronavirus, coupled with a swathe of new laws appears to be sparking a market uptrend.
In its latest review of the residential market, the global consultant Knight Frank reported that transaction volumes in Dubai’s residential market rebounded strongly in the third quarter of this year, rising 50 per cent over the previous three months. However, transactions for the year to September 2020 are down 16.5 per cent compared to the same period a year earlier. With the market suffering from an over-supply of new units for several years now, it is off-plan volumes that have been hardest hit, falling by 25.6 per cent, while secondary market transactions declined only 3.3 per cent. While transaction volumes in September 2020 were above the average monthly volume recorded in 2019, it is still too early to tell if activity will return to historic norms over the rest of the year, Knight Frank said.
Undersupply in mature communities
Like the rest of the market, Nick Grassick, Managing Director of property broker PH Real Estate, said his business was severely hit by the onset of the coronavirus pandemic, but that there was a flurry of activity from buyers once lockdowns eased and pent-up demand was unleashed.
“We now have a new market norm with an undersupply of properties across the more mature communities. I refer to the resale market in limited, established areas and not off-plan units,” he said. “As a result of sellers’ reluctance to sell at lower prices, there is a limit to the number of homes being marketed.” At the same time, he added, buyers realise that homes are being marketed at record low prices and fear an imminent price increase. “If a buyer is outbid on a home, they double down their efforts (and potentially the level of their offer) on the next property.”
Around the world, property prices have continued to rise despite the pandemic. With more time spent at home, home buyers have been looking to bigger properties with more space – where they can afford it. “Covid-19 has displaced some of the residential demand and has replaced investors with end-users as the major sources of demand. End users have shown an inclination towards townhouse and villa products which is evident in the transaction volumes for these product types,” agreed PP Varghese, partner, Real Estate Strategy and Consulting at Knight Frank Middle East. “Between April and November 2020, there were about 4,200 villa transactions, with approximately 63 per cent of these being ready units. Total villa transaction volumes between this period were almost the same as in 2019.” Several developments appear poised to drive momentum upward by bringing in new talent and improving business conditions.
Curbing the virus
The government acted swiftly to curb the spread of the coronavirus with a lockdown in April, while major events, such as Expo 2020 were moved to next year. Several bureaucratic processes were moved online, including property transfers in Dubai. Stimulus packages totalling 18 per cent of GDP have helped the economy, which has rebounded in fits and starts. Although business conditions in the non-oil private sector have deteriorated again in the third quarter, the IMF expects real GDP to grow 1.3 per cent in 2021 following a 6.6 per cent contraction this year.
Separately, the country acted to improve business sentiment with an updated bankruptcy law. Likewise, the recognition and launch of trade relationships with Israel in August will likely bring in `new investment. Earlier this month several sharia-linked laws were also relaxed, improving personal freedoms for residents: unmarried couples can now live together, and expats’ home country laws apply to inheritances and family issues.
Several new residence visas have been announced. Ten-year residency permits for doctors and other specialist professionals will bring in new talent. Retirees who buy property over Dh2 million can apply for retirement visas, and remote workers earning $5,000 per month can apply for special one-year visas. “The new retirement visa will support a long-term view and encourage people to consider retiring in UAE,” said Sayndippta A Ghosh, Head of Residential UAE at JLL, the real estate advisor. “With expats making up over 80 per cent of the overall population, this move will not only help create a sense of security, but will also impact real estate in a positive manner and hugely benefit other sectors like healthcare, tourism, retail, entertainment in the long run.”
The new visas have already sparked interest from tens of thousands of applicants, Helal Saeed Al Marri, Director General of Dubai Department of Tourism and Commerce Marketing, said on the first day of the Cityscape Real Estate Summit in November. “We have seen a very large interest in the new visa programs, due in part to the attractive environment of living in Dubai,” he said.
When will Dubai property prices rise?
With limited supply in established communities, and real estate demand on the rise in Dubai, home prices are beginning to pick up, although a market-wide increase in capital values could still be some years away.
“We have already seen an initial rebound in home prices from the lows of the summer,” said Nick Grassick, Managing Director of property broker PH Real Estate, speaking about the resale market in limited, established areas. “In some communities, values have surged 15-20 per cent – although it should be noted this level of growth is not sustainable.” The realtor Knight Frank says in its Q3 UAE Residential Market overview that although demand has returned, primarily to established communities, the continuing influx of supply will mean that average prices are expected to remain under pressure in the short to medium term. Handover of some units is likely to be pushed into next year, where where scheduled supply stands at an historically unprecedented number, the agency said in its report.
“Capital appreciation is expected to happen only in tandem with a revival and restitution of the global economic climate,” said PP Varghese, Partner, Real Estate Strategy & Consulting at Knight Frank Middle East. “This is closely tied to the production and distribution of a vaccine, resumption of travel, and the revival of the tourism industry in general. Conservative estimates peg capital appreciation in Dubai’s residential market to take at least three years.”
Investors remain optimistic, however. In a recent home sentiment survey by investment and research company Peninsula Real Estate, 33 per cent of UAE homeowners expressed their belief that home prices will increase in the next 12 months. That’s up from only 11 per cent of respondents in Q2.
“In the short term, investor sentiment is still expected to drive the overall transaction volumes,” Varghese added. “In this regard, the [recent] new personal freedom laws are expected to have a significant impact. The new laws coupled with the massive advertising platform in the form of Expo 2020 is expected to dispel dated notions of the city globally and further promote Dubai as a major tourism destination, potentially translating to increased economic output, population and employment growth, further increasing residential demand and consequently investor interest in the sector.”