PW asked a panel of experts to share their thoughts on things to keep in mind if you are buying a home in the run-up to the World Expo 2020.
CEO, Core Savills
In a market that is increasingly buyer-friendly, a variety of existing and upcoming products are available and, as a homebuyer, the selection process is relatively easier. While we expect Expo 2020 to cause a sentimental boost in the market, decision-making continues to be focused on the following core fundamentals for end users and investors: location, developer reputation, access to finance and payment plans. Long-term investors and occupiers who are keen on the central locations are the ones holding interest in historically core sub-markets such as Dubai Marina, JLT, Emirates Living, The Views and The Greens, which continue to witness a steady transaction activity.
With the city expanding south/south-eastwards and the extension of the Dubai Metro, we shall continue to see more developments emerge. However, these may require more time to be established and reach higher levels of absorption. We anticipate a segmentation of the investors’ market to form once again. On one side are long-term investors increasingly looking at core locations such as Dubai Marina, Downtown, the Palm and Emirates Living on the back of yields that are still relatively high but will likely continue to compress. On the other side, a re-emerging group of shorter term investors will be looking at less expensive and less core products offering higher short-term returns in the lower mid-market and affordable segments, on the back of many end users who are unable to shift yet to ownership and are hence contributing to keeping these yields relatively stable by renting in this segment.
Managing director and group head, real estate, ValuStrat
As they say, the three most important criteria in buying a home are location, location, location. In the lead-up to Dubai Expo 2020 this could perhaps be changed to: location, off plan vs ready and payment plan vs mortgage deal. We anticipate both direct and indirect inflationary forces in some segments of the Dubai residential market over the next few years. Improved sentiment and predicted population growth of 250,000 by 2021 are expected to increase sales demand for some housing. Conversely, the introduction of VAT may increase construction costs and be passed on to purchasers by way of higher prices for new homes even as rising interest rates push up mortgage repayments. With disposable incomes reduced by VAT and dearer lending rates, it will be interesting to see how developers respond in their pricing strategies. Builders have worked to deliver reduced ticket prices by employing innovative construction techniques, smaller floor plans and using cheaper land in less central locations.
Expo 2020 has helped focus much new development in the south-eastern districts of the city. We expect this trend to continue, further enhanced by growing demand drivers such as DWC airport, Dubai Parks & Resorts, Outlet Village Mall and delivery of the Metro Red Line extension. Some real estate investors are likely encouraged by the anticipated legacy benefits of Expo 2020 in associated locations, particularly where infrastructural deliveries such as metro, roads, schools and retail offerings are expected to have a long-term benefit on the property market.
CEO, Allsopp & Allsopp
I would advise buying sooner rather than later. The general consensus — and certainly something that we agree with — is that the price cycle is now at the bottom. In the run-up to the Dubai Expo, we expect prices will rise. We’re not saying the market will explode, but definitely we think prices will go up, so the sooner the better. Go with what suits you. There is a lot of value in both off-plan and established communities. Don’t get caught up in what you think you should do. Both will have value added in the long term and both have their advantages. Some people are
so concerned with what is right and wrong to do that they forget to think about what works best for them. Think about your needs, your day-to-day life and what the community and location offers you. Do your research and speak with reputable brokers. There is a lot of choice in the market these days; speak to people who can listen to your needs and give you advice. Also, always remember it’s important to do some due diligence online. The market will still be driven largely by end users, more so as most of the new developments and buildings are gearing up for handover by 2020 — it will be end users that mostly buy into these at handover and look to move into the community.
Managing Director, Global Capital Partners
Buying a home is a long-term consideration, and a plethora of factors enter into decision-making, both qualitative and quantitative. What we can shed light on are some of the cyclical variables that have entered the lexicon lately: prices roughly bottomed out a year ago; since then, in various communities they have risen by 5-6 per cent, whereas in the luxury end they have flatlined.
Transactional activity is up more than 15 per cent in the ready space, and more than 35 per cent in the off-plan space. This has occurred despite the macroeconomic headwinds — low oil prices, a strong dollar, supposed job losses — as well as geopolitical factors (Qatar). What this illustrates is that smart money is being allocated to the sector and on an incremental basis, the buying has increased. Some of the demand has undoubtedly been due to the generous incentives developers have offered by way of post handover payment plans, but it is equally true that mortgage-buying has increased — belying claims of tightening of credit — and end-user demand has steadily risen.
From a bird’s-eye view, the narrative appears to be that unlike the first boom/bust cycle, which exhibited violent price movements, this cycle has been subdued. This is healthy for the market, indicating steadily rising investor confidence — this can also be seen by a flurry of activity via REIT formations — at the institutional but more importantly, at the individual level.
The media gets into a frenzy all the time, and the brokerage industry does not help, by asking investors to invest just before the onset of new levies — this was the case when transactional fees were increased from 2 to 4 per cent. Similar noises are being made regarding VAT as well. At the margin, there will be these decisions that will be made, to be sure. However, in the long term these do not appear as more than a blip on the horizon. Any investor and/or end user considering buying a property is doing so looking at the long term, and long-term prospects for the economy and therefore the sector appears to be extremely healthy.
Global Head of Research, Cluttons
On VAT there is a lot of information being drip-fed. It’s a new regime. The information will be easier to digest if all the rules and regulations came out at the same time. In one of the recent releases, the tax authority said that residential property was exempt. Another statement has come out indicating residential property will be exempt for the first three years after handover. If indeed it is the case that residential property is exempt until three years after you have your keys, then the investor would benefit from off-plan purchases.
In the secondary market stock there may be a rate of slowdown as people absorb the extra cost. If you’re thinking about all the charges — including 4 per cent transfer fees, VAT, fees for agents, banking fees for mortgage and lawyers — it adds up to about 9 or 10 per cent of property value. That might be a shock to the system. In terms of a demand profile, the market has been softening for the better part of two years. That is linked to global economic conditions. With the Expo coming up and associated population growth, there will be sudden increase in demand for residential property. It may push home ownership away from many people a lot faster. Dubai is world-renowned for producing luxury residential communities and developers are continuing to focus on that. The vast majority of supply pipeline is skewed to residential luxury.