Bluewaters is one of the new waterfront residential destinations in Dubai. With many new projects, buyers are spoilt for choice and are likely to take a longer time to decide Image Credit: Shutterstock

The oversupply in Dubai’s residential real estate is coupled with an oversupply in the education sector as well, say property and education consultants in the emirate. While an estimated 60,000 to 65,000 residential units are likely to be completed or handed over to the market between 2019 and 2020, according to research from international real estate consultancy Savills, it is the downward pressure on property prices that is one of the important parameters to gauge oversupply in a particular market. Reports from Savills say there has been a drop of 8-10 per cent in asset prices across both apartments and villas in Dubai between June 2018 and June 2019, while the percentage drop in 2018 when compared to 2017 has been around 12 per cent.

In the education sector as well there continues to be a mismatch between new school supply and the income and demand levels of its residents, says Shaun Robison, partner and director of the Dubai-based Education Intelligence Group, which recently produced the Knowledge Economy Report. “Most of these new schools have come up along Al Barsha South and Dubailand and these are all premium schools,” says Robison. According to the report, two of the largest expenses families in the UAE have to budget for are housing and schooling. In recent years, there has been an increase in new school supply, but on the other hand there have been a higher number of families relocating back home where schooling is often free. School operators, therefore, have to deal with empty seats and have been forced to offer significant discounts and incentives to parents, explains Robison.


The property market needs further transparency on supply control to address oversupply challenges, says Richard Paul, head of professional services and consultancy, Savills Middle East. In major global cities, this is done by having planning and development guidelines that are reviewed periodically. “This ensures that the planning intention of developments translate to a better-built environment and regulates the introduction of new supply only when needed,” says Paul. “Industry stakeholders need to acknowledge the current situation and undertake the necessary steps to mitigate any challenges posed by upcoming supply. To initiate stability, any new projects should only be announced once the current under-construction stock is absorbed and handed over, and benefits from sufficient occupancy levels.”

While Dubai has introduced several controlling measures in real estate, “a more robust city planning and development regulation could be established to contain risks associated with oversupply and speculative investments,” adds Paul.

The message of oversupply, according to Paul, “can have an adverse influence on the investor psyche. With so many new projects coming up, investors and buyers are often spoilt for choice, and hence are more likely to put their decision on hold.”

Furthermore, Savills notes that even though Dubai continues to witness steady population growth, it is not directly correlated with real estate demand as not everyone moving to the city may be interested to purchase real estate. Robison adds here that for both developers and school operators, while success in the past came easily from the “build it and they will come” mentality, the market is different now.

According to Data Finder, a real estate insights and data platform in Dubai, between now and 2020, around 45,595 units stand 70 per cent completed and are expected to be handed over to the market. The amount of new supply entering the market will continue to put pressure both on sales and rental prices, says Lynnette Abad, director of research and data, Data Finder.

A focus on handovers

“The city can immensely benefit from the upcoming Expo 2020. It has excellent infrastructure and there is sufficient availability across established and upcoming residential communities where visitors can invest,” explains Paul. “Instead of launching new projects, developers should focus on handovers and upkeep of their current stock. This will go a long way in appealing to the international investors.”

Research data from Savills has shown that in the first half of the year there has been a 3 per cent increase in off-plan transactions — 9,990 units — as against 9,660 in H1 2018. On the other hand, secondary sales has remained almost flat, with 6,560 units sold in H1 2019 as against 6,760 units in 2018.

“There is clearly an appetite for off-plan property,” says Paul. “This has been whetted by the long-term payment plans that have been introduced by developers since last year, which are now being positively regulated over a maximum of three years. These payment plans have allowed a lot of purchasers, who struggle with the initial 25 per cent down payment, to access the market. This is one of the reasons why we have witnessed an increase in off-plan transactions.”

According to him, properties in price brackets below Dh1.5 million are proving to be the most attractive. “This is a price point that people are able to manage and pose attractive returns.”

Affordable schools

Meanwhile, despite more seats coming up in already existing schools, 16 new schools opened in 2018, adding an additional 25,000 more seats. Only two of these schools could be defined as “affordable”, with the remaining schools offering fees within the premium or mid-market segment. Majority of the new supply which have entered the market are in locations where there are existing schools offering similar price points and curriculum, the Knowledge Economy Report points out.

“Our report highlights that developers are not accurately surveying parents within master communities. The market is different now, and property developers can’t expect high returns on new schools that are taking longer to fill up,” says Robison.

Embracing the new Dubai

Developers, Robison says, need to embrace the “New Dubai”, which he defines as an education ecosystem where developers and operators have shared goals, rather than simple landlord-and-tenant arrangements. He adds that it is critical that the price point of a school is aligned with the residential community.

“Investors now have to delve deep and explore what residents in Dubai really want,” says Robison. “Investment expectations have to shift towards long-term goals, as parents clearly want to stay in Dubai and educate their children. In our focus groups parents have stated they want schools that are sustainable and closer to home. The long-term residency initiatives are definitely a plus for parents and they hoped this was rolled out for everyone. I am hoping investors will learn more about these expectations, and education will become more affordable, much like the residential real estate sector.”