Expatriate residents need to consider factors like job security and cost of schooling that could impact mortgage payments Image Credit: Phocal media

As residential rental rates in Dubai continue to slide, registering a 12 per cent and 10 per cent year-on-year decline for apartments and villas respectively, according to Asteco second quarter reports, tenants are breathing easier in the emirate while prospective investors are rallying with an 11 per cent drop in sales values over the same period. Nick Grassick, managing director, PH Real Estate, reports an increase in enquiries, and buyers, due to lower sales values, while Katie Savage, director of boutique agency The Urban Nest, has seen a steady rental market over summer.

“It’s been quieter than usual this year, with more people negotiating to stay in their current property, although new(er) communities also remain popular,” she says. A 15 per cent rise in rental enquiries is the figure mooted by Abdul Kadir Faizal, co-founder of digital real estate investment platform Smart Crowd, who believes the situation is very much “watch and see”, with added concerns regarding job uncertainty, a factor for many would-be investors.

Incentive to purchase

The allure of a bricks and mortar investment is nonetheless consistent, as Faizal explains. “We are seeing a huge shift to renters (end users) buying, especially with off-plan developments from the likes of Emaar who are offering incentives such as a waiver on Dubai Land Department (DLD) fees and a three to five-year post payment plan.”

“Tenants are also being enticed by deals that offer a way to circumnavigate the high 25 per cent loan-to-value rate. The zero commission and zero DLD fees reduce additional costs by 6 per cent, and developers are often only looking for 5-10 per cent down-payment with up to 90 per cent on completion. Cassia, The Fields is a good example,” adds Savage.

Lewis Allsopp, CEO, Allsopp & Allsopp, suggests that potential investors consider the long game. “Dubai will continue to grow after 2020. Already this year, the population has grown by 3.5 per cent and predictions suggest that by 2027 the population will double. The Chinese middle class is also expected to be at 220 million by 2022 and the Indian middle class is set to rise to 475 million by 2030. Both nationalities are huge investors in Dubai and the Middle East’s largest China Town will be at Dubai Creek Harbour.”

Ivana Gazivoda Vucinic, head of consulting, valuations and advisory operations for Chestertons Mena says. “In recent years we’ve seen developers building off-plan properties with smaller unit sizes. By lowering ticket prices, the aim is to increase absorption rates. We also believe the wider introduction of let-to-buy schemes would be hugely beneficial in absorbing available units and thus minimising market uncertainty, a significant concern for today’s prospective buyer.“

Consider the options

The ongoing rental rate decline is granting prospective investors temporary reprieve when it comes to making final decisions. Says Grassick: “As rental declines are noted, buyer offers are adjusted accordingly. Homeowners are much better paying off their own mortgage, not someone else’s; and investors will always move forward when they identify a lucrative opportunity.”

The Allsopp CEO notes a mix of investors and end users, as well as a “significant rise” in buyers stepping on to the property ladder or upsizing and buying family homes. “One of the most important factors to remember is that property markets are cyclical and that prices will rise again, so as long as you’re not looking to make a quick profit there is a strong likelihood that you will have made a good investment,” he adds.

Due diligence is a no brainer and as well as the ins and outs of financing and fee structures. Expatriate residents also need to consider the tenability of their UAE existence from employment safety, cost of schooling and overall cost of living, and how that impacts mortgage payments.

Glass hall full

Smart Crowd’s Kadic puts negative market sentiment at the top of the wavering investor list “along with the 25 per cent deposit for finance purchase and the falling rental prices.” He says, “if banks can reduce the initial deposit in purchasing properties and developers can reduce or delay the handover of units, this could provide the impetus for people to invest.” he remarks.

Adds Savage: “The 3 per cent early settlement fee that was introduced last month is perhaps an indication that the loan-to-value ratio may change later in the year, and bring with it an influx of ready buyers keen to secure a good deal, but the increase in demand will push prices up.”


The downsized renter


With two children now at college in Canada, Assad Eid rents an apartment in Mirdif, but has dipped his toes in the investment scene previously.

“In 2007, I decided to invest in the Remraam development anticipating that prices could shoot up to three times the original investment, and put down 15 per cent on two off-plan units,” says Eid. “At this time there was also talk of lifetime residency for investors, which was a further incentive. Handover of the first unit was delayed from 2009 to 2013 due to developer issues, by which time the property had significantly dropped in value. I rented it out but was still losing several thousand dirhams each month. I sold the unit two years ago for Dh104,000 less than the price I paid for.

 I also sold off my original flat two years ago for less than I paid originally – but I was just happy to get some money back.

 - Assad Eid 

 

“The second phase of the project was discontinued and I was eventually refunded my money for my second unit in 2016, but lost thousands in costs and fees, not to mention interest charges. My experience was a worse-case scenario and I also sold off my original flat two years ago for less than I paid originally – but I was just happy to get some money back. I’m not interested in investing again despite the dip in prices.”


The tenant-owner


Marianna Rheuben and her family invested in two Dubai Marina apartments in 2012 and 2014 but rent an Umm Suqeim Road villa to accommodate a growing family.

 The bank offers and fees are much higher these days and rent is much cheaper, so our return on investment has dropped considerably.

 - Marianna Rheuben 

 

“The bank offers and fees are much higher these days and rent is much cheaper, so our return on investment has dropped considerably,” says Rheuben. “So we made the decision to not reinvest in the UAE as we find villas harder to sell than beachfront apartments. There’s also a lot of oversupply of residential villas in new projects, such as Dubai Hills, Town Square, Mira and The Villa. This has brought rental and sales values down by almost 30 per cent, so we decided not to buy the villa we live in, but to rent instead. We have moved our investment to Australian real estate, as well looking at some African countries.”