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The softening of property prices in Dubai should not be reason for doomsday prophecy. Luxury sales specialist Sally Ann Ghai at Luxhabitat looks at the brighter side and believes the current prices are more realistic and prove a more mature real estate market.
Current market sentiments
Following two years of world-leading price gains in 2012-2013, nearing 30% year on year, Dubai’s real estate market has demonstrated it is well on the way to recovery from the lows of 2008-2009. I think it would be more correct to view those 2012-2013 values in the context of approaching an already established ceiling rather than going through the roof. Certainly, sentiment peaked after the Expo hosting announcement as mortgage loan to value (LTV) caps were increased and the transfer fee doubled. These actions did skim the froth from a simmering market. However, emboldened sellers then overshot on pricing by adding another 30% to their 2014 asking prices. Although it took a year of buyer-seller standoff, those expectations have slowly deflated.
The real estate landscape is thankfully maturing from an investment-driven bonanza into a more solid, value-led marketplace which views property as a mid to long-term investment. Overall, moderate caution has ultimately increased price stability. This sense of assurance encourages more end-users, who identify strongly with their home as an expression of their lifestyle, personality and aspirations, to enter the market. Quality, good aspects and/or location are centrally important factors in this end-user economy. Having endured the bubble scenario once, the market is much more mindful of overexuberance this time around. Gentle recalibrations rather than wild price swings signify a maturing market, and this price correction has been a recalibrated one. However, a number of external factors have supported the sellers’ ability to soften their prices.
The currency markets have allowed expats relocating sale proceeds to Europe to lower sale prices without actually affecting their bottom line. Meanwhile, low oil prices have introduced an element of caution in buyers connected to that field. Undeniably, the 25-35% mortgage cap has dampened some genuine end-user demand. I would welcome a revision of that cap that’s less austere; such a change would be in the best interest of Dubai’s maturing market.
Checks and balances
Dubai is still full of affluent property owners. No one is on fire here. Sellers are not as overleveraged as they once were and can mostly afford to wait out the flat line. Safe measures to contain unfettered growth and discourage property flipping have proven effective. Still, this market remains small enough that sentiment is incredibly sensitive to both positive and negative messages. It is critical that the industry informs the consumer dialogue in a responsible way, based on solid sales analysis rather than hearsay. We can do that now as transparency of market data has improved dramatically.
Strategy for buyers
Prospective homeowners are driven more by emotional factors than pure pricing when it comes to finding a house that’s the right fit. Buyers can certainly afford a better property than they could have 18 months previously, and mortgage rates are currently very competitive. There is a fair amount of choice in the secondary market at the moment so buyers should use that as an advantage. No one can predict the bottom of the market, but unless you’re short-selling on the stock exchange, that shouldn’t be necessary. Most importantly, stop waiting for that super-distress unicorn. A protracted period of price softening has already tempered the risk. If you find a house you love, peg your offers against recent comparable sales, close the deal, and be patient to see your eventual and inevitable gains be realised over the longer term. Price expectations are still patchy, but a dose of realism means the keenest sellers have already caught on to the trend and are pricing correctly. There are some rational dynamics that should limit any further discounting. You can’t eliminate all uncertainty from a purchase decision, but a natural price floor should be a comfort that suggests your investment is on solid ground
• Penthouses and prestigious villa communities have ticket prices accessible to only a privileged few. But Dubai does attract high-net-worth individuals and wealthy investors looking for a particular lifestyle and that isn’t likely to change.
• The old adage “location, location, location” will always hold true. In a couple of years, Jumeirah Golf Estates will be a sought-after destination. The Mohammed Bin Rashid City is going to be hard to beat in terms of location. Also, quality developers with a solid reputation and high delivery standards are the safest bet.
Source: S. Dhar, Special to Freehold