Dubai: UAE real estate demand is surging among buyers and investors, with a spike seen during the first half of 2021. But how can you make the most of your money in a rebounding property market?
The UAE’s real estate sector has been proving its resilience amid COVID-19, with sales being projected to hit $58 billion (Dh213 billion) by the end of this year, analysis from the Dubai Chamber of Commerce and Industry had highlighted a week earlier, which is a year-on-year increase of 13 per cent.
Dubai sees record property surge in H1
Dubai’s residential property market has seen a 74 per cent increase in number of transactions in the first half of 2021, indicated data from Dubai-based property crowdfunding platform SmartCrowd.
This is compared to a year earlier when the world came to a standstill during the peak of the pandemic. During the first half of this year the value of property transactions in Dubai more than doubled.
Dubai’s property market appeared to ‘bottom out’ in November 2020 and the first half of 2021 reflects a V-shaped recovery (quick turnaround) for the residential property sector, the platform regulated by the Dubai Financial Services Authority (DFSA) noted in its ‘Dubai Residential Property Report (H1, 2021)’.
What is driving real estate demand?
“A combination of factors appears to have strengthened the volume and value of transactions during the first half of this year,” explained Siddiq Farid, chief executive and co-founder of SmartCrowd.
Government policies to introduce attractive visa and residency schemes for investors are starting to bear fruit, said Farid, while adding that incentives to support entrepreneurs and the private sector have underpinned investor appetite for real estate.
“While nothing is guaranteed, we expect that confidence to continue to grow for the remainder of the year,” Farid added.
Where real estate demand is seen booming in the UAE?
The Abu Dhabi residential market delivered about 1,700 apartments and 50 villas during the first quarter of 2021 with an increase in demand for villas, particularly within Yas Island, Al Raha Beach, Saadiyat Island as well as the Al Reef community, Abu Dhabi-based Asteco Property Management had revealed.
Affordable communities such as Al Reef also noted heightened interest and an average quarterly rise in sales prices of 7 per cent, Asteco said, adding that apartment sales prices remained broadly unchanged over the same period due to limited demand.
Additionally, Sharjah recorded about 12.2 billion in property sales in the first half of 2021, a 40.5 per cent increase from 2020, with residential transactions accounting for nearly 50 per cent of demand, revealed global real estate consultancy Savills.
UK-based Savills, which has operations also in the UAE, also noted in its latest ‘Market in Minutes’ research that “despite the downturn, activity levels have bounced back with robust demand recorded across Sharjah and this trend has continued throughout the first half of 2021.”
“A preponderance of activity is being concentrated in the University City district, with micro markets like Al Khan District, Al Suyoh, and Al Rahmaniya Suburbs also seeing development activity, which is projected to result in an increase in the supply of high-quality developments at competitive prices,” said Shane Breen, director of valuations and advisory at Savills Middle East.
How can a home buyer financially benefit from resurging property demand?
Interest rate cuts in response to the pandemic have led to a fall in the cost of borrowing, with rates falling from 2-2.75 per cent in 2019 to 1.5 per cent in 2021.
Mortgage rates have also become more attractive for investors as the median mortgage rate fell from 5.2 per cent in the last quarter of 2019 to 2.49 per cent in the last quarter of 2020.
Average villa service charges – which is the recurring fees paid for the maintenance or upkeep of a property – have also fallen dramatically to Dh2.96 per square feet from Dh3.60 per square feet in 2019.
Service charges tend to be the largest fixed cost for property and a lower service-charge-to-rent ratio makes property investment attractive as more revenue is retained by the investor or property buyer or owner.
Loan-to-Value (LTV) ratios, which compares the amount of a loan you’re hoping to borrow against the appraised value of the property you want to buy, have increased by 5 per cent for all first time property buyers – who can now borrow up to 80-85 per cent of a property’s value as the home loan amount.
This means that you only need to invest 15-20 per cent of a property’s value as a down payment. Higher LTV ratios reduced a significant barrier to entry for first time buyers, therefore opening up a larger pool of local, expatriate and foreign investors and homeowners.
Cheaper options to buy properties boosts UAE real estate prospects
Since 2019, the UAE has become a hotspot for emerging financial technology firms, especially those that have provided cheaper alternatives for UAE residents to own, buy or invest in property.
Research shows that the COVID-19 pandemic has accelerated digital changes in the real estate space as the industry now utilises technology to make real estate more accessible and affordable, particularly due to the significant fall in prices and costs brought about by the pandemic.
There are now different platforms available to partly own property in the UAE, like SmartCrowd, Stake, among others, wherein investors can utilise a real estate investment platform (REIP) to invest in a variety of real estate opportunities using a crowdfunding model, where your share of ownership is proportional to your investment.
These crowdfunding platforms allow local and international investors to earn rental income from properties with the flexibility to sell the shares in their properties for potential profits. The schemes are regulated by the Dubai Financial Services Authority (DFSA).
‘Real Share’, which is the real estate investment platform by Lootah Real Estate Development (run by the above-mentioned SmartCrowd platform), and peer Stake, provides access to various properties at investments starting from between Dh2,000 to Dh5,000.
So as investors, you are able to take advantage of falling market prices by allocating small amounts into REIPs today in order to take advantage of bargains in the market, without taking on too much risk.
Buying to sell or buying to lease: Which is more profitable?
When it comes to investing in real estate in the UAE, investors need to know what kind of options they have. UAE offers two main types of properties for investment: freehold and leasehold.
Freehold property can be owned outright by the investor while leasehold property involves setting a lease of a property for 99 years or less. If you want to invest in a leasehold property, it may be less expensive than freehold property, but you will also need to factor in costs like ground rent, maintenance charges, and service fees.
Buying to sell?
The EXPO 2020 is slated to start in October 2021 and this is expected to provide investors an opportunity to make investments in areas near Al Maktoum International Airport and Dubai Investment Park, multiple UAE property consultants confirmed.
Investors will also have the option of investing in the hospitality sector, which is expected to boom again or resell their property with profit, the experts further add.
Apartment prices in prime locations in Dubai are low because of the pandemic; however, they are expected to rise as the EXPO approaches, making it the best investment option to make money.
Buying to lease?
Investors looking to outright buy properties so that they can lease them out need to consider several factors like return yields and the return on investment (ROI). (Link to previous story)
Investing in neighborhoods that offer a mix of apartments and villas like the Jumeirah Village Circle, Jumeirah Lake Towers, and Barsha Heights is a good choice in terms of rental income and is one of the best investment plans for monthly income, surveys indicate.
Which is better now: An off-plan property or ones that are ready to move?
Research show that ready properties commanded the most attention from investors with majority of property deals overall in the UAE being in completed homes, against a quarter of them being off-plan.
Demand for ready stock also helped drive per square foot prices for available properties up by 10 per cent in Dubai, analysis from SmartCrowd showed.
In the first-half of 2021 average off-plan price per square foot took a dip by 3.42 per cent compared to the year-ago period.
“However, this can be attributed to new supply focusing on affordable housing segments and thus putting downward pressure on average pricing,” SmartCrowd noted.
The SmartCrowd report also looked more closely at specific areas and segments in Dubai.
“While Palm Jumeirah has shown a 34 per cent uptick in the value of property transactions and a 221 per cent increase in volume of transactions, while JLT saw the highest increase in transaction volume of 262 per cent,” the report noted.
Verdict: Is buying property a good investment currently?
If you are looking to buy property right now, experts continue to recommend that it is still an ideal time to do so.
Thanks to low interest rates for mortgage, availability of higher loan-to-value ratio, discounted property prices, reduced service charges, attractive property valuation, and incentives like service charge waivers, the real estate sector currently is still a buyer’s market.