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The slowdown in Dubai’s real estate sector has been well chronicled and can be attributed to a number of factors. These include the weakening of capital inflows; emergence of alternative investment opportunities as prices started to rise; the introduction of the 4 per cent transfer fee along with proactive measures by developers to limit speculative practices; a new law regarding rental price increases; and investor nervousness and trepidation, all of which have led to some hesitancy to buy into a market that investors feel is at its peak.
Add to this list the implementation of new mortgage laws and the latest bout of investor nervousness surrounding the price of oil, and there is a succession of probable reasons for the slowdown.
So the question that we in the industry are being asked repeatedly is: Should we invest in Dubai real estate this year?
The answer is yes and here are seven compelling reasons for that:
1) First of all, we are talking about a slowdown, not a recession. The slowdown was necessary to ensure the type of sustainable, profitable growth that long-term investors seek. The market has demonstrated its maturity and resilience by recovering so rapidly and now slowing to more sustainable value appreciation levels.
2) There is no doubt the market will continue to benefit from consistent demand as the broader economy continues to grow. Dubai’s economy is doing well, with growth strong at around 4.5 per cent and independent bodies such as the International Monetary Fund forecasting more than 5 per cent econom ic growth every year through to the end of the decade.
3) The economy is being driven by fundamentals such as tourism and trade, and a slew of new projects to grow these important revenue-generating sectors forms a part of Dubai’s growth outlook. The emirate had expected 12 million visitors last year, continuing a growth trend of approximately 9 per cent year-on-year since 2010, a statistic which is the envy of many countries.
4) When you are investing in real estate you are really investing into an economy — and the effect of the upcoming World Expo 2020 on the UAE economy cannot be understated in terms of generating demand for real estate assets. Hosting the event will provide additional impetus for continued growth, and the predictable surge in demand for accommodation and commercial spaces of all types, from labour camps and offices to warehouses, apartments and executive villas, is sure to have a significant effect on property values.
5) Finance is still cheap but the low mortgage rates of today will probably not be available in two or three years. Now is the time to make significant inroads in paying off a mortgage while interest rates are still low. This is why we have been encouraging clients who haven’t yet saved enough for a deposit on their dream home to compromise and buy a more affordable property now and benefit from lower interest rates before upgrading to their dream abode in the future. With careful planning, you can benefit from such low rates, enabling you to grow your equity more quickly to a point where you can afford your true dream home — something many cannot do today.
6) While the headlines regarding asset bubbles could make some to predict an impending gloom, what they really highlight is the unprecedented level of governance, oversight and scrutiny that the industry is being subjected to. The ongoing development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible, speculative, predatory and unethical practices, reveal a mature and balanced approach to shaping an industry that exhibits sustainable growth over the long term. The industry was much more resilient last year and investor — not speculator — confidence has been making a big comeback.
7) If it’s superior yield with minimal capital outlay you are after, Dubai real estate is still hard to beat. Affordable property in developments such as Queue Point, Skycourts, International City, Dubai Sports City, Discovery Gardens and Jumeirah Lakes Towers are all benefiting from the city’s recovering economy and you can expect a rental return of at least 7 per cent in these areas, while 10 per cent rental yields are not uncommon. Demand is being driven mainly by first-time homebuyers and investors seeking the increasing earnings on offer, while both rental yields and property values are expected to increase as the World Expo draws near. Given the relatively low cost of entry, the opportunities that reside in the more affordable end of the market are becoming more lucrative every day.
Source: Mohanad Alwadiya, Special to Property Weekly
The writer is a Managing Director of Harbor Real Estate and advisory board member and instructor at the Dubai Real Estate Institute.