Every issue of Property Finder Trends, Lukman Hajje opens with a much-needed overview of the market to kick off our biannual real estate market report.
It is reprinted here in full. Lukman, on top of being an outspoken voice, is a keen observer of the market with great insight that any property seeker in the UAE would be wise to take heed.
Price declines, although they continue, appear to be slowing. In most parts of the UAE, property prices are at early-2013 levels since starting to drop in mid-2014, but the worst could be over.
For the first time, Property Finder publishes here its asking price data for the last two years, providing a longer view of price trends and a better picture of widely reported price declines.
These declines have been slow and gradual, with low, single-digit percentage points per quarter across most communities and segments. Rents held better than sale prices in the early part of the decline but the reverse has been true now for the past 18 months.
Over the past year, rents have fallen faster than sale prices, but the long-term price trend appears to be flattening across all market types.
Dubai’s real estate sector slowed in the first half of this year with deals transacted falling 16 per cent in year-on-year in value, according to a July report from the Dubai Land Department.
Off-plan real estate transactions boomed last year on the back of aggressive marketing tactics and low upfront payment plans. These offers continue, but this year buyers have not been as keen to snap them up.
For more than a year, the overriding sentiment has been that prices are at, or very close to, the bottom of the cycle and will increase in the lead-up to Expo 2020. But supply continues to exceed demand and the pundits, myself included, have continually been proven wrong as prices have continued to fall. Will we be right this time?
This transactions slump comes at a time when the government is taking some steps to promote longer-term residency. Earlier this year, the UAE said it will enact changes to its residency visa policies by the end of 2018, with in-demand workers offered visas of up to a decade. This includes doctors, engineers and other professionals in the medical, science, research, and technical fields, according to the government.
With more off-plan projects coming up for sale and being handed over, offering 10-year visas will help steady the market, but to what extent will depend upon details to come from the government at the end of this year.
There will also continue to be an increase in product offerings in affordable emerging communities in the sub-one million AED, sub-one thousand AED per square foot segment, which were historically under-served during Dubai’s earlier construction booms.
The definition of affordable depends greatly upon your perspective, what you earn, and where you’re from. Someone who wants to purchase a completed AED 1M property and is hoping to borrow the maximum 75% of the property value will theoretically need to earn AED 12K+ per month (more if they are over 40 years old with existing debts), plus be able to put down AED 310K in cash upfront for the 25% deposit, in addition to purchase costs.
The question is, if you earn AED 12K per month and are renting in Dubai, can you afford to save AED 310K in cash? Furthermore, most UAE banks won’t lend to individuals earning less than AED 15K per month.
The “affordable” segment effectively targets those with household incomes of AED20K+ per month who are frugal and have the capacity to save, or those with cash in hand whose rent would be equivalent to the mortgage payments and building fees.
As of 1 July 2018, 21% of listings on propertyfinder.ae were sub-AED 1M and 33% were asking under AED 1000 per square foot. Dubai is becoming more affordable.
The mortgage cap regulations which stipulate the minimum 25% deposit for expats ensures safer lending practices, but also creates a large moat for those wanting to buy established housing, leaving the door open for creative developer off-plan payment schemes. Some of which may prove to be too good to be true.
A shift toward affordability puts the property ladder within reach for more of the population. But certainly the new mortgage guidelines announced in June allowing banks to charge a borrower a 3% exit fee (up from 1%) on their mortgage is a big step in the opposite direction, further handicapping the secondary market in particular, which is dominated by mortgaged end users.
The recently announced overhaul on company ownership structures allowing foreigners to own 100 percent of a company based in the Emirates could have a significant impact on the UAE economy and ultimately the UAE property market.
Since 1984, anyone who has opened for business in a non-free zone area has been required to have a local partner that owns 51 per cent of the business. Only those based in free zones can be 100 percent foreign-owned. This has long been an anomaly of the otherwise business-friendly UAE, and it is impossible to say the impact it has had on the local economy.
With the exception, of course, of Emiratis, everyone here by definition of their visa restrictions, is transient. The more committed expat residents are, the more likely they are to invest in the country, and all the better for the economy.
Someone renting for five years will have paid about 40 percent of the property value.
With this kind of time frame, those with the means will buy, obtain mortgages, and further engrain themselves into the local community and economy.
These new reforms are encouraging to long-term residents, and maybe the demand driver the country has needed for some time.
By Lukman Hajje, Chief Commercial Officer at Property Finder Group
For a full breakdown of price trends by area, and 132 pages of market insight, download a full copy of Property Finder Trends: Property Finder Trends