Dubai or not Dubai?

This article was originally published in Propertyfinder Trends 2017, Vol 3.

Looking back on the year, developers are strengthening their case to investors.

In September, we saw Dubai host the 16th Cityscape Exhibition, witnessed sales being transacted on the exhibition floor, and developer stands extending through the far reaches of Halls 6 and 7.

The event was run in tandem with the Real Estate Conference, which attracted over 1,500 delegates this year. Bitcoin, block chain, impacts of VAT, and consideration of escrows for brokers all took centre stage. The event supports Dubai as a long-term investment opportunity and builds confidence in those that are still cautious when looking at the market. I don’t see Cityscape as a market- changer, but certainly a successful Cityscape can have a positive impact on the industry. Looking back on this year’s event, developers are making an exciting case for Dubai.

Typically, I see the Dubai property market move in five- year cycles. With the last peak over 2013 and ‘14, we should be nearing an upturn in the market. In 2017 through the third quarter, there was some stabilisation in the market, according to Cavendish Maxwell, with sales prices reflecting only approximately a 1 percent decrease and up to 4% decrease in rental prices. These decreases are strongly influenced by the number of units we see entering the market.

The business coming through our doors is tracking alongside the records held by the Dubai Land Department: 75 percent of transactions are currently off-plan purchases. Developers are launching off-plan projects with more choice, and more competitive pricing and financing conditions. They are chasing a point of difference, and it is becoming more the norm for developers to offer post-handover payment plans, and cover the costs of the buyers 4% registration fees. Developers are also scaling down the size of the units they are releasing into the market and handing over, enticing a different segment.

In my 17 years in the Dubai real estate market, I have witnessed many changes to all aspects of this business and I do believe that 2018 will follow 2017 as another challenging year. Controls in the market are continuing to be introduced and developed as the industry is still learning and growing. Further legislation and tightening of real estate practices is creating a platform for a healthy and respected future for all stakeholders. These drives toward long-term sustainability are all positive moves to further support investment into Dubai.

As we head towards Expo 2020 (the world’s first carbon neutral ‘mega event’), I anticipate seeing more developers using the words ‘green’ and ’smart’, and for Dubai’s Smart City initiative to play a role in their plans. If anyone can build a smart city for it’s residents to work, live and play in – it’s Dubai.

An example: The Jumeirah Central mega district by Dubai Holdings on Sheikh Zayed Road, opposite the Mall of the Emirates, will be a futuristic city within a city. Schools, offices, parks, malls, housing will be connected by a smart transport system and protected by smart police services.

There is a property being developed for every conceivable requirement, but with the white-collar workforce driving the residential market, the question is not the supply and demand, but what we are delivering and to whom.

The question over the lack of affordable housing across all areas of Dubai is causing some concern. Growth of the population and Dubai’s young age pro le means there must be more lower-priced housing. Even with the decline in rental prices over the last few years, we are still seeing some emerging areas, such as Dubai Sports City, Jumeirah Village, IMPZ, and Silicon Oasis becoming unaffordable for the budget-conscious resident.

 

There is a property being developed for every conceivable requirement but with the white-collar workforce driving the residential market, the question is not the supply and demand but what we are delivering and to whom.

 

Affordability must remain the major driver for developers as access to affordable housing is a basic human right and need. Cheaper housing options provide developers with lower returns, so they continue to compete and deliver in the high-end segment, but a large segment of the workforce is being overlooked.

When I refer to affordable housing I am not necessarily referring to the provision of housing to a low-income bracket, but affordable housing costs in relation to a person’s income. The average income for 50 percent of Dubai households is around AED 15,000 and generally 30 percent of income is spent on rent making the majority’s affordability AED 54,000 per year.

Despite this, developers are typically continuing to concentrate on the higher end of the market. Dubai is a positive real estate market leader in the region, but we need to close this gap before the residents of Dubai lose sight of what the definition of ‘affordable’ actually is.

It is not only property prices but also mortgage products that are at their most competitive, which is having a positive impact on residential activity. The DLD has recorded and reported that the value of mortgage transactions has increased to AED 60 million in the first six months of this year from AED 48 million over the same period last year. With the dirham pegged to the US dollar, mortgage interest rates offered in Dubai follow the US market. This offers investors a stable, well used and recognised currency that is highly traded at an international level.

Employment packages in Dubai typically include a housing allowance which can be used towards a mortgage. A typical case study I use when explaining the advantages of buying over renting is with a AED 1,000,000 property in Dubai, your borrowed amount will be AED 750,000 at a 2.99% interest rate over a 25-year term. The mortgage repayments would be AED 3,553 per month. If this was a one bedroom apartment and we take a conservative rental rate of AED 70,000 per year, the rent per month is AED 5,833. Your lower mortgage repayment is also a more manageable monthly cost rather than paying rents over 1-4 payments through the year. What these figures also indicate is that if you buy a property today and sell at the same price in 3 years, the money you saved in rent affords your 25 percent down payment required for borrowing.

Dubai is now supporting more mid- to long-term investors whoarecertainlylookingwellbeyondExpo2020. With a current population of approximately 2.8 million, 85% of which are expats, property investment portfolios are being built right on our own doorstep.

Compared to 2016, the number of GCC investors increased by 16 percent, and overall foreign investors increased by 35% over the last year.

Dubai offers strong capital value gains, attractive yields, and is perceived as the safe haven of this region. The city is certainly a leading destination and as a major city compared to the likes of Hong Kong, New York, London, buyers get much more in Dubai per square foot and per ticket price. Dubai is also a blue chip community packed with a good caliber of potential tenants supporting the investor market.

Dubai is one of the most dynamic and rapidly growing cities in the world. The growth and development of this city seems to fuel more and more ambitious projects unimaginable in other parts of the world. So when thinking about whether to buy or not to buy, remember this: Dubai is a market that other cities can only dream about.

 

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Zarah Evans

Managing Director, Exclusive Links

 

 

BACKGROUND I relocated to Dubai in 1997 and started in the real estate industry in 2000. I spent many formative years in Australia working for Qantas Airways where I also completed a Bachelor of Business Administration in Travel and Tourism.
HER WORDS My column covers topics I speak publicly on, and have been hot subjects discussed and raised by audiences.

LESSON LEARNED To me it is all about the people. Whether that be your customers or the team of staff around you, people come in and out of your life to help you build a story. I always adopt a passionate approach to most things I do and try to make everything matter in some way or to someone.