Gulf real estate investors keen on potential growth in the UAE

Gulf real estate investors keen on potential growth in the UAEImage Credit: Supplied

Over the past decade, Dubai has been on a real estate roller-coaster ride of boom, crash and recovery. Property values halved between 2008 and 2010, but then rose phoenix-like from the desert to regain most of their losses by 2014. The rallying prices of years 2013 and 2014 in Dubai have set off the alarm so authorities had to react to prevent a market boom-and-crash cycle. Dubai's market regulators, wielding mortgage caps and a doubling of transaction fees, stepped in to reduce speculation. This combined with deteriorating oil prices, currency fluctuations, a strong US dollar, to which the UAE dirham is pegged and a series of economic and political failures in different parts of world, means lower levels of demand from most regional and international group of buyers looking to purchase properties in Dubai. Add an excess of new-build supply into this mix, and the net impact has been a 12 per cent fall in mainstream property prices over the 12 months to June 2015.

Nevertheless, falling prices are not totally bad news. With the government stepping in to curb speculative activity through tightening mortgage regulations and capping price increments, it is evident that lessons have been learnt from the 2008 downturn. More interestingly, with price falls continuing to outpace rental value declines, initial yields are rising. Reaching more than 7 per cent in rental yields in the mainstream property segment, Dubai still stands tall among real estate capitals in the world for investors seeking income generating properties. Never to forget that returns here are always tax free. In addition, the magnitude of decline in prime residential prices (4.5 per cent) in the year to June this year was smaller compared to the mainstream segment.

Regional competition

Regional markets have picked up the sparkle of Dubai's speedy development in a way to compete with the emirate and gain a share of the inbound flow of global private wealth. But despite the rise of alternative regional markets for international buyers, Dubai and Abu Dhabi will remain the focus for most activity in the region. Investors and developers are counting on the potential economic growth in both cities, led by a forecasted 20 per cent increase in the UAE population by 2030.

Economic positive prospective of Dubai is no doubt deeply founded. Its airport already serves 70 million travellers a year with capacity set to rise to 200 million. The port at Jebel Ali is expected to become the world's largest in the next 15 years, reflecting Dubai's emergence as China's logistical hub for the Middle East and Africa. Having in mind the Expo 2020 in Dubai and the massive economic activity linked to it, demand is seen gathering momentum in a steady pace over the next seven years and beyond.

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Source: Property Weekly


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