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Property transactions are on the rise this year, contrary to reports indicating a decline in market activity. There are also now more affordable options for homebuyers as a positive effect of price correction, bringing in more end users into the sector. The volume of property transactions this year has so far risen by 18 per cent compared with the same period last year, and month-on-month growth in the past 12 months has increased by 12 per cent, according to real estate firm Allsopp & Allsopp.
Furthermore, the Dubai Land Department (DLD) announced that total transactions in the first two months of the year have reached more than Dh68 billion and could reach Dh300 billion by the end of the year, up from Dh267 billion last year.
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Lewis Allsopp, CEO of Allsopp & Allsopp, says only the investor segment is often evaluated by market analysts and talked about in the media, leaving the end-user segment out of the equation and leading to an inaccurate assessment of the market. He adds that in the present price correction, transactions have risen in the end-user market.
“Around 85 per cent of transactions we have completed this year are ready properties [for end users], although there is still an appetite for buy-to-let investment,” Allsopp tells PW. “What we see here is the evolution of a mature property market, where people are buying homes after renting for a few years, then selling those homes and upgrading to larger properties, creating a mature property cycle.
“It’s a fact people are buying homes.”
With the decline in sentiment, Allsopp says many people think the market has bottomed out, thus stimulating activity in the homebuyer segment. “This trend will only continue and gain more momentum as people see the market react positively to end-user purchases,” he says.
Easing restrictions on the mortgage cap can create more opportunities for homebuyers. “[The market could gain more momentum] if the UAE follows Saudi Arabia’s example of easing the mortgage cap — Saudi Arabia has halved the minimum down payment to 15 per cent,” says Allsopp. “If this happens, a lot of people who were previously priced out of the market could suddenly become serious buyers.”
The impact of the oil slump on real estate also has to be taken in perspective. “Oil plays a bigger factor in the investment market, as property, especially off-plan, is motivated by profit,” says Allsopp. “Based on the conversations and speculation we’re currently seeing in the market, it’s no surprise investors are holding back to see how markets react.”
This means that fluctuations in oil price will have little or no effect on homebuyers. “These are individuals who are buying a home for their family. Maybe they need the extra bedroom because they are expecting a child, or maybe they are downgrading or moving to another area to be closer to schools or work. The decision to purchase a new home is not based on the oil price.”
The softening of prices is seen to have a dual impact on the market, according to Ashirwad Somani, Chairman of Candour Properties. “At one end, it leads to negative sentiment, but on the other hand it motivates the end users to make the purchase, once the prices stabilise. We have seen this in the last six months; the negative sentiments have cooled off and the buyers have started to make decisions.”
Transactions in the end-user segment for both ready and off-plan projects have improved this year, says Somani, adding that developers are making their properties more attractive with innovative payment plans and a customer-focused approach. “Buyers now get the attention of brokers, which they don’t get when investors are active since investors are bigger and easier buyers.”
While market transparency and industry standards are improving rapidly, Somani cautions of volatility in the market. “Investor protection is a key element in the equation and Dubai is doing everything to make investors feel protected.”
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Somani says investors are taking their time for two main reasons. “The time for holding a property has increased and [investors] have a cash flow requirement, hence they are shying away from taking any new positions,” says Somani. “Another reason is that investors go with the momentum and the moment they see a positive thrust they start buying again.”
In the past 20-odd months, the market has been on a steady decline, leading to more sustainable pricing, which is a healthy sign for the market, says Rajiv Ghanekar, Associate Director of Fine and Country Real Estate Brokers. “On the lending side, mortgage providers are more competitive than before and flexible on their terms, due to the rise in interest rates and a decline in property values,” says Ghanekar. “The market seems more buyer-centric and would present excellent opportunities when investing in high-yield property in prime locations.”
Analysts agree that the past eight to 10 months have seen an increase in end-user transactions and this trend is likely to continue for some time, driven by factors such as declining prices, low borrowing cost and shortage of supply in non-freehold areas. These factors point to a buyer’s market and Ghanekar believes it is a good time for both end users and investors to purchase property.
“There are more sellers and fewer buyers, resulting in a wider choice for the buyers and better pricing. Moreover, mortgage rates averaging 3.5 per cent per year are still on the lower end of the spectrum and the super-attractive payment plans from developers make it a lot easier for the buyer to commit.”
Source: Hina Navin, Special to Property Weekly