It is accepted that we are in a “soft” market. The key issues stem from too much supply and insufficient demand. Bearing in mind actual materialisation rates against the scheduled figures over recent years, we are likely to see between 20,000 and 30,000 new units delivered in Dubai and between 5,000 and 8,500 new units in Abu Dhabi this year, according to Peter Greatrex, partner in the real estate and hospitality team of law firm Clyde & Co in Dubai. “Ultimately there is no ‘quick fix’ for oversupply as more projects continue to come online across the UAE, especially bearing in mind the UAE Government’s drive towards Expo 2020 and other long-term development plans,” says Greatrex. However, he expects more initiatives to be taken to stimulate demand and encourage investors. The new visa regulations announced last year are a step in that direction. “This will encourage individuals to purchase properties and companies to expand their businesses. Having end users wanting to put down long-term roots in the UAE is key to stimulating long-term investment in the real estate market.”
A helping hand
Furthermore, the UAE economy is set to see significant growth in sectors such as transport, communications, construction and real estate, points out Lewis Allsopp, CEO of Allsopp & Allsopp. “With Expo 2020, these sectors will continue to expand, creating job opportunities,” says Allsopp. “More and more people are, therefore, being encouraged to move to the city. The introduction of investor visas, 10-year residency visas, 100 per cent company ownership and retirement visas will also encourage people to stay in Dubai long term. Some large developers such as Emaar are offering a free trade licence with the purchase of a property above Dh1 million.”
Allsopp believes that such encouraging signs from the Dubai Government and certain developers will have an impact on the property market. “Some supply will be taken by investors who have been enticed by the attractive offers, payment plans and visas provided. However, we still believe that encouragement must be given to people who already reside in the city. Residents in Dubai who are looking to step onto the Dubai property ladder are finding it difficult to put down the high deposits on a home. To inject more demand and higher transaction levels in the real estate market, we would recommend a helping hand for first-time buyers.”
Greatrex agrees to this and says that further steps to stimulate demand could come from the reduction of land registration fees in Dubai and a greater accessibility to financing, potentially through revisiting current limitations on loan-to-value rates, known as the mortgage cap. “However, there may be a reticence to make wholesale changes in this regard until the impact of the changes already made are known later in 2019.”
Opportunities for landlords
The market, however, is not without opportunities, he says. In the residential rental market, there are likely to be a number of tenants looking to negotiate their rental payments or upgrade as they see more rental opportunities in the market. Tenants will need to weigh up the potential savings in relocating, with the “hassle factor” of moving, bearing in mind both the stress and cost.
“Historically, many tenants fail to take notice of the time periods and procedures for renegotiating or terminating their leases and find themselves stuck for an additional period,” says Greatrex. “They should consider their plans well in advance of the expiry of their current lease. It is also important not to cause an impasse with your current landlord unless you are willing to move and you know that there are acceptable alternatives for you.”
This market also provides opportunities for proactive landlords, especially if rental prices are unlikely to significantly increase over the next two to three years, he explains. “Rather than wait for your tenants to leave and run the risk of having vacant units, landlords can take the initiative and go to their tenants with proposed rent reductions in return for a longer-term commitment, say two years instead of the traditional annual lease. This allows landlords to ensure they keep a good familiar tenant in their property for the long term.