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What do you get when prices are low and rents are high? A buyer’s market, which is how industry players have characterised Dubai’s real estate sector this year. Real estate sales prices in the emirate are already considerably lower than in cities such as London, New York, Hong Kong, Paris, Mumbai, Singapore and Sydney, according to Savills World Research, but rental rates here are far more expensive, resulting in one of the highest real estate investment yields of up to 9 per cent.
And while rents are 5-6 per cent down compared with the same period last year, sales prices have dipped further by 10 per cent, according to Zhann Jochinke, CEO of Keller Williams Real Estate.
The combination of competitive sale prices and high rental rates also provides a strong motivation for a much bigger chunk of the tenant population to buy their own homes. “For end users that have sufficient funds for a 25 per cent down payment, 2016 makes even greater sense to enter the realmof home ownership rather than continuing to rent,” says Jochinke.
Jochinke says home ownership gives an opportunity to build wealth and increase net worth. “When you rent, you do this for your landlord,” says Jochinke. “Owning your own home and paying off your mortgage gives you equity in the property. When you sell in the future or leverage through refinancing, you will see the rewards.
“Additionally, in most instances there is a significant cost differential between owning and renting, whereby it works out less expensive to own property than rent it from someone else.”
As an example, Jochinke says a purchasing a Dh2.6- million Shoreline Apartment on the Palm Jumeirah through mortgage would require a 25 per cent down payment equivalent to Dh650,000 and monthly payments of around Dh11,150, inclusive of mortgage and service charges. The annual rental rate of the same apartment is around Dh185,000 or Dh15,417 per month. Buying the property would therefore result inamonthly savings of Dh4,267, says Jochinke.
For the remainder of the year, Jochinke expects a further single-digit correction in both rental and sales prices, as well as an increase in the number of transactions.
Sallie Bowtell, Partner at Trowers & Hamlins, says many tenants are buying homes realising that “rent money is dead money”. She points out that buyers ultimately benefit more if they hold a long-term view on their home investment.
“There are mixed reviews on the market at the moment how property values will hold up in the short term,” says Bowtell. “But a longterm investor will appreciate the cyclical nature of real estate and understand the long-term growth potential of a developing country such as the UAE, and in particular Dubai. For those looking to invest in off-plan, developers are more frequently coming up with innovative payment plans and structures that buyers can take advantage of.
“This, coupled with relatively adequate protections in place for off-plan investors, creates a stronger incentive to invest.” Bowtell is also seeing more turnover in secondary sales, which, she says, is an encouraging sign of market maturity. “[It] will be interesting to see what the average return on secondary sales looks like,” she says.
Hydrocarbon prices, fears of oversupply, a strong US dollar and regional geopolitical uncertainty, coupled with an overall bearish perception in the market, are likely to place moderate downward pressure on the Dubai residential sector this year, according to a report by Core, the UAE associate of Savills.
However, other factors are also expected push the market in the other direction, including the release of Iranian equity, a potential rebound in oil prices, creation of new jobs, the World Expo 2020 and a growing pool of investors looking to re-enter the market at the right price and time.
Source: Hina Navin, Special to PW