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Sharpen your buying antennae for this may well be your market. For a conscious home investor, there couldn’t be a better time when sellers’ prices, bank finance rates and rental yields seem to converge favourably. And if agency surveys are an indication, over the last three months, more and more homeowners are enquiring about the possibility of a good sale, signifying an urge to offload properties at reasonable rates.
Correct side of the cycle
The fundamental drivers of Dubai’s real estate market remain strong, despite the world economy being slightly shaky in the aftermath of the political unrest that swept across region since 2011. UAE remains a safe haven within a volatile region, even as it cements its place as a business and financial hub. Investors in for the long haul can continue to factor in promising capital gains from the World Expo 2020 and development of Dubai as the centre of Islamic finance.
The cyclical nature of the real estate market, at this juncture, is conducive for buyers. The turnaround in the property sector started in the latter part of 2012, as the revival of prices ensured capital gains of up to 32 per cent for Dubai home sellers. This trend, however, changed in the second half of 2014, with buyers getting an edge when it came to price negotiations.
As the market corrects further, potential homebuy-ers can sniff around, hone their bargaining skills and grab a lucrative offer. Sales price trends for apartments show that overall transactions have been low since October 2014. During the year to April, Dubai’s all-residential property price index fell by 2.8 per cent, the first month of year-on-year decline since March 2012 and in sharp contrast to the spectacular 37.5 per cent surge during the same period last year, according to Reidin.
Power of financing
As the softening of the market continues with prices showing a downward trend, should buyers wait until the market bottoms out?
Property handlers say the decision should depend on the nature of home financing available. Financing trends within the banking sector over the last 10 months indicate that this may well be a buyer’s market. Banking experts say availability of financing options act as decision-triggers for end users — whether they should wait indefinitely or strike what they believe is a bargain deal. With a low profit rate regime, decision making for homebuyers seems to have become easier.
In fact, banks are now laying out all their options — be it their lowest pricing or larger financing portfolios — aggressively targeting new groups of buyers such as self-employed individuals and non-residents. They are also intensifying their interests in commercial and off-plan financing as well.
In the last six to eight months, banks have felt the pinch as customers adopted a wait-and-watch policy, preferring to sit out this cycle of the property market. They have now taken a proactive approach, focusing on expanding their financing volumes by targeting buyers with lucrative offers.
This indeed is as good as it gets for homebuyers with an appetite for investment. Customers are once again becoming conscious of the competition in the banking industry and are taking advantage of deals offered by top banks.
Smart buyers are also aware that with the unpredictable environment, there could be short-term liquidity issues, which in turn could affect interest rates. Hence they are also looking to lock themselves at the prevailing low rates for the coming years.
One of the most attractive characteristics of Dubai property investment is the prospect of high rental yield — considered one of the best in the world. Rents have increased since mid-2012 through 2013, peaking in the second half of last year. Since then, the market saw a period of stabilisation, with some declines in the last six months.
Securing property near the bottom of the market no doubt ensures better rental yields. Compared to sale prices, rents in Dubai have stayed high, yielding attractive gains for the homeowner. In fact in some areas rent hikes from smaller units touched double-digit gross levels.
In a happy coincidence for prospective buyers, gross rental yields, for both small and large apartments, are in the range of 6-7 per cent, and rising. In comparison, property owners in London are lucky to bag rent hikes of 3.2 per cent. Rentals in Dubai have held on due to high demand for accommodation, making the return on the asset highly attractive.
On the much talked about supply, there would be some impact on the yields. However, prominent areas will still be attractive from a yield point of view due to a downward pressure on sale prices.
Yields on smaller units should remain attractive both inland and in prominent areas. This is dependent on factors such as growth in population, which will help absorb a portion of the supply. Another factor that should not be negated is the gap between the expected supply and actual supply.
Investors in the UAE are starting to treat the current environment as a buyer’s market. The individual investor now displays a greater risk appetite. Selective buyers once again are starting to take a positive outlook, repose faith in the fundamentals and take smart decisions by combining lower property prices with attractive financing options.
After all, real estate investment in Dubai is by far a better option than any other portfolio in the variable economy of the day.
Source: Pawan Dhawan, Special to Property Weekly
The writer is head of home finance at Noor Bank.