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Dubai’s property market has been a hot topic of discussion recently as many try to predict the outlook for the next year. Global ratings agency Standard & Poor’s (S&P) expects Dubai residential real estate prices to fall by 10-20 per cent this year. To top it all, the International Monetary Fund (IMF) expects prices in Dubai to plummet further, weighed down by rising supply. So what’s next?
A number of factors are at play. According to Reidin.com, 20,170 additional units will be delivered in Dubai this year alone. This could significantly dilute the market and increase competition, especially if a correction is around the corner. The weakening of the yuan, yen, euro and rouble this year is also pricing out many international investors in the UAE’s US dollar-pegged market. The low price of oil is certainly taking its toll on a region that relies significantly on its hydrocarbon cushion.
We have seen smart moves by the UAE Government to cut spending by 4.2 per cent this year — the country’s first reduction in 13 years, and this has had an impact on potential local and regional investors whose liquidity could be suffering. As a whole, Dubai’s often volatile property market has seen a considerable slowdown over the past 12 months, which some commentators are taking as a sign that the market is starting to mature.
However, with a cloud of uncertainty still hanging over the local market, property investors are increasingly looking further afield, with London, Berlin and Melbourne emerging as the key hotspots.
When identifying which cities to focus on, we look for locations that represent pockets of value. These are safe-haven markets that will deliver stable, sustainable yields and capital appreciation over 5-10 years as a result of rising population, major infrastructure upgrades and economic growth.
The Crossrail effect
While London experienced a lull during the uncertainty leading up to the UK general election, the appetite is back. However, with prime central London appreciating an average of just 2 per cent over the past 12 months, investors are now following the ripple effect towards outer London where the strongest gains are forecast in the medium term — more than 25 per cent in the next three years. Infrastructure projects such as Crossrail, the new high-frequency railway for London and the South East, are among the principal catalysts for this growth. Locations such as Woolwich and Ilford are set to benefit the most from this historic infrastructure investment.
The UK’s second major city, Manchester, is also in the spotlight. Its investment case is based firmly on a thriving local economy, a cosmopolitan culture, a rapidly growing population and significant residential undersupply. Residents of Manchester now number more than half a million, having recorded growth of more than double the national average over the past decade and a half. The city centre has grown even faster, with the area’s population quadrupling over the past 20 years. At the centre of the government’s Northern Powerhouse vision, Manchester’s pioneering push for increased regional devolution has allowed for the emergence of strong leadership with the scope to deliver a Manchester-focused vision for the future.
Europe’s strongest economy, Germany, is also exceptionally well poised. Berlin’s commercial might, cosmopolitan appeal and a thriving education sector continue to drive population growth. Berlin apartment prices were up 11.7 per cent last year, while rents rose 6.6 per cent to keep typical gross yields above 5 per cent. The city’s rental market is a key factor supporting Berlin’s investment case; just 14-16 per cent of the city’s residents are homeowners, making Berlin very much a landlord’s market.
Although there is growing concern that foreign investment in Australia is driving up prices in cities such as Sydney, areas of Melbourne and Brisbane remain thriving markets to invest in. Melbourne’s stable economy and swelling population continue to drive capital growth. Apartment prices rose 5.2 per cent in the year to March, while the city’s low vacancy rate of 2.1 per cent kept rental yields at a healthy average of 4.1 per cent.
Investment continues to pour into Brisbane, underpinning a real estate market that has seen prices record 12 consecutive quarters of growth since early 2012. Brisbane’s median unit price reached 422,000 Australian dollars (Dh 1.09 million), a rise of 3.6 per cent, in the year to December. With a shortage of housing stock still endemic across the city, further price rises are anticipated, with forecasts putting growth at 5-8 per cent this year.
The global property market can appear complicated and volatile, especially the prospect of entering new territories where available information is limited. But sometimes a little research and looking beyond your immediate investment horizon can reap big rewards.
Source: Paul Preston, Special to Property Weekly
Director & Head of Middle East at IP Global, an international property investment firm
Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided