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At the rate Chinese investments in UAE property are growing, analysts say China is fast emerging as a major player in the country’s real estate sector. China was already the seventh biggest property investor in Dubai last year, contributing almost $460 million (Dh1.68 trillion). In the first half of this year, Chinese real estate investments already totaled around $273 million and could reach more than $500 million by the end of the year, according to the UAE Chinese Property Report in August by Juwai.com.
“Chinese investment in UAE property is a great sign for the real estate market in the UAE,” says Mansi Saxena, Marketing Director of SPF Realty.
She adds: “Frankly, it is no surprise given over 150 different nationalities invest in Dubai real estate. This trend is definitely going to continue and in an exponential manner. If you look at the numbers, it is staggering. According to Juwai, a leading Chinese international property website, the Chinese investment interest in Dubai grew 1,200 per cent year-on-year compared to last year.
“More and more investment is expected to come in as Chinese buyers discover the benefits of investing in Dubai.”
The growing number of Chinese residents in Dubai has also contributed to the sharp rise in property investments. According to the UAE Chinese Property Report, the Chinese population has increased by 53 per cent in a span of five years.
According to the Juwai report, inquiries by Chinese investors for UAE property are set to more than double this year compared to last year. Bernie Morris, Head of UK, Europe, and the Middle East for Juwai, says, “Fifty seven per cent of our potential buyers report that investment is their primary goal – not lifestyle, immigration or education.”
The annual investment yields on residential property this year in the UAE is reported to be around 6 per cent, which is better than what buyers can obtain in most other markets, according to the Global Property Guide 2016 by Juwai.
“The majority of our users inquire about property worth $1 million or less,” says Morris. “Chinese buyers often worry that their market is too volatile, but it is also hard to find an overseas market with good prospects for yields and capital gains. The UAE is a rare country that offers both.
“The UAE still has a lot of work to do regarding raising awareness and communicating the benefits of investing in the country to the majority of Chinese buyers. Given the size of the UAE market, it only needs to attract a small share of Chinese consumers to experience a significant impact on transaction volume. By making tourism and visiting easier, the UAE’s new visa rules for Chinese will have positive spillover effects on property investment.”
Apart from investing in UAE property, Chinese have also been buying real estate in other overseas markets such as Australia, the US and Europe, looking for freehold property, which is not available in their home country. “The number of Chinese tourists coming to the UAE has increased substantially, and Chinese businesses that operate here in the UAE have increased significantly” says Sanjay Chimnani, Managing Director of Raine & Horne Dubai. “Dragon Mart has doubled its area because more businesses have come up. Many of them are primarily from Chinese companies. Besides this, there are very large-scale Chinese companies that have come in the construction, contracting and consumer electronics businesses.
“Hence, a variety of businesses are finding Dubai to be their base to do the business in the Middle East and North Africa. There are individual investors from China or people who have moved in here to open their businesses or work in big business and find Dubai to be a good destination to invest in real estate for self-use or to build an international property portfolio.”
Nakheel, one of the Dubai’s biggest developers, has also reported a surge in the number of Chinese property investors. The company says nearly 400 properties with a total sales value of approximately Dh800 million have been purchased by Chinese so far. The most popular Nakheel developments for Chinese buyers are International City and the new Warsan Village community, where around 300 units have been purchased. Jumeirah Park and Palm Jumeirah have also attracted Chinese buyers.
Property Weekly: Tapping into China
Thousands of Chinese have invested in Dragon Mart, Nakheel’s recently expanded retail and trading complex, with nearly 5,000 shops run by over 1,700 Chinese trades people. The employees of these businesses need accommodation, and this has been a factor in the increased demand for rental property in Dubai, which already offers higher returns than in London, New York, Hong Kong and Singapore.
Chinese property agent Mark Wenbo, who works as a Senior Sales Executive at Prime Places Real Estate, points out that there are two kinds of Chinese investors in Dubai: the businessmen who live in Dubai and tourists who only come to visit Dubai and prefer to invest in smaller properties. However, Wenbo believes Dubai needs to work towards attracting more HNW Chinese.
With around 300,000 Chinese living in the UAE and most of them are trading in the region, the country is becoming an appealing destination to work and stay says Wenbo. “The city offers the best with seven-star hotels, high-end buildings and properties. In the new Chinese policy, Dubai is one of the main areas incorporating into the new Silk Road. Moreover, China has an excellent relationship with the UAE and the big players in the market will respect the fact that Dubai is part of the new trading route.”
In China property is purchased not for yield but capital growth, as capital growth is higher in China. Wenbo thus points out that rental yields are much higher in Dubai than in China where it is 2-4 per cent maximum. “Also, Dubai is more attractive for investment partly due to the World Expo 2020,” he says. “Moreover, rental yield is insurance for the Chinese investor who will also benefit from capital growth.”
Saxena believes rental yields in China are even smaller, adding that the realty landscape is also getting highly saturated. She explains: “The big cities such as Shanghai and Beijing are being overcrowded due to which the price per square foot is extremely high, and rental yields range 2-3 per cent at best,” says Saxena. “In other areas beyond large cities, thousands of homes are lying vacant and are very hard to sell due to low capital gains because of oversupply. Moreover, all property investments in China are only available as leasehold for 70 years. These factors have led the wealthy Chinese investors to find lucrative investment outside of China.”
The slowdown of the Chinese economy and the yuan devaluation have further fueled their interest in overseas prospects, she says. Many Chinese are also looking for property in countries where their children are studying, or where they plan to migrate. “Dubai has become an attractive destination for the Chinese compared to other gateway cities such as Sydney, London and New York because of the high capital gains and low property prices on average. Rental yields, [which could go] up to 8-10 per cent, and gains are tax free.”
Freehold ownership, safe investment policies, the well-regulated market, strong government regulations on escrow accounts and construction-linked payment, access to amenities such as education and health care and the residence visas offered to investors of property worth at least Dh1 million have added to the strong appeal of Dubai, she adds.
“The price per square foot in the major Chinese cities such as Beijing and Shanghai are in the range of $13,462, while in Hong Kong it is approximately $26,326,” says Saxena. “The rental returns in Beijing and Hong Kong are in the range of 2-3 per cent. Compare that to Dubai, where the average price is $4,566, one of the lowest in the world compared to gateway cities, while the rental returns for apartments can go up to 8-10 per cent, while for villas it’s 5-6 per cent.
“Looking at these figures, Dubai offers better investment opportunities to Chinese, while providing everything a Chinese investor is looking for when buying property overseas.”
Source: Hina Navin, Special to Property Weekly