Property Weekly: Where do we go from here?

PWPorush Jhunjhunwala

After peaking in October 2014, average apartment prices in Dubai fell by 16 per cent in 2015 and a further 6.8 per cent in the first half of 2016. 

The plummet in prices worked in the market’s favour, driving Dh113-billion worth of sales and mortgage transactions in the first half of 2016, based on figures from Dubai Land Department (DLD). While slightly lower than the Dh129 billion for the first half of 2015, a closer look shows the number of investments actually increased. Nearly 28,000 transactions were made during the first half of 2016, compared to 23,000 in the same period last year. 

The surge in deals implies more buyers, especially end users, are taking advantage of lower property prices despite the drop in residential rents by an average of 5.7 per cent. 

Not surprisingly, Dubai’s most sought-after areas witnessed the greatest year-on-year decline in rents, including Dubai Marina (–6 per cent), Jumeirah Lakes Towers (–5 per cent), and Downtown Dubai (–4.2 per cent). Yet it was those exact locations that saw the highest demand from buyers over the past six months. According to DLD, Business Bay took first place for total unit sales, followed by Dubai Marina, Warsan 1, and Burj Khalifa. For mortgages, Dubai Marina came first, followed closely by Al Thanaya 5 (Jumeirah Lakes Towers), Business Bay and Burj Khalifa. 

As sales prices level off and UAE tenants look to own property, lenders are loosening their grip on mortgage funds. Recent media reports revealed banks signed off on Dh3.8 billion in property deals in May, up from April’s Dh2.5 billion, suggesting that sales activity is not driven by cash-ready investors alone. 

At the same time, Russian buyers appear to be returning to the market, having made 727 transactions over the past six months. Experts claim to have seen online traffic from Russia jump from 6 per cent in January to 17 per cent in July, a significant upward trend. 

When it comes to off-plan projects, several developers have postponed completion dates and, in turn, unit handovers; therefore, it is unlikely the market will face a glut in supply in the next 12 months. 

About 8 per cent of current real estate projects are expected to take two to three years to reach completion and an estimated 17 per cent have been delayed by up to two years. Such slowdown in deliveries suggests a longer period of lower sales prices and provides opportunities for buyers to gain extra value from their investments. 

In fewer than five years, when all eyes turn to Dubai for Expo 2020, many projects should be ready including Dubai Water Canal, Dubai South, Bluewater’s Island, MBR City District One and The Tower at Dubai Creek Harbour. 

Additionally, Dubai Municipality has earmarked Dh6 billion to develop 12,000 hectares of urban greenery by 2020, while developers continue to expand the emirate’s coastline with man-made islands. Among them is Nakheel’s Deira Island, a mixed-use development that will add 40km to the city’s coastline. This scaled-down version of Deira Palm will have beachfront resorts, hotels and residential communities, a marina, waterpark and a large amphitheatre. 

The project has seen impressive progress over the past year. Dredging work has started, a Dh4-million contract was awarded for the setup of the sewage treatment facility, and construction began on the island’s Dh150-million Entrance Bridge. 

The World Islands, too, have been in the limelight ever since developers announced Pearl of Asia and The Heart of Europe’s St Petersburg, the latter set to become a honeymoon resort. 

Although no timelines have been specified for these projects, they are likely to extend beyond Expo 2020. 

In parallel with the city’s luxury developments, affordable projects too have become a focus area for developers keen to replicate the success of popular communities such as Jumeirah Village Circle, Dubailand, Dubai Silicon Oasis and IMPZ. These have consistently delivered attractive rental yields and saw the smallest declines in rent over the past year. 

In comparison with Dubai Marina for instance, where rents dropped 6 per cent year-on-year in June 2016, rents in International City and Discovery Gardens fell by only 2.8 per cent and 2.5 per cent respectively. 

A new pipeline of affordable housing projects is emerging across Dubai Investment Park, Al Furjan, Dubai South and Dubailand, where units in Bella Casa sold within hours according to the developer, Dubai Properties Group. 

In the long term, Dubai’s real estate market will continue to be supported by strong fundamentals, be it the emirate’s position as a safe investment haven or the continued government spending on infrastructure projects.

Source: Porush Jhunjhunwala, Director of Banke InternationalPW
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.


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