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Living in Dubai means that real estate is very much part of our everyday life. Whether it concerns speculation over future rental prices, questions over the best-value locations to rent in or whether now is a sensible time to buy or sell, real estate often occupies our thoughts and conversations in this region. It would seem there are almost constant headlines in the media here concerning spectacular increases or falls in property sales and rental prices or bubbles about to burst.
After seeing property values appreciate faster than in any other global market over the past 12 months, we are now hearing stories that the market appears to have just suddenly ground to a halt with activity virtually drying up. Now we learn from a recent report by Asteco that after ten quarters of increases, average apartment prices fell by 1 per cent and villa prices lost 4 per cent at the end of September compared to the start of July.
Furthermore, average apartment rents fell 2 per cent during the three months to the end of September, while average villa rents dipped 3 per cent as the number of new homes increased. All this happened less than two weeks after Cityscape Global, where developers unveiled plans for 27 new mega projects in the emirate.
This is a far cry from the euphoria and hype surrounding the announcement of Dubai as the host of the World Expo 2020 and the resultant extraordinary price increases. This volatility in house prices, largely driven by speculative investors, is a serious issue in Dubai and was a huge factor in the problems hounding the real estate market pre-2008.
For an expat, no one can doubt the logic in purchasing property if you expect to reside here for some considerable time. This is particularly understandable if you are exposed to the possible threats of unreasonable and unpredictable rent increases, which are often imposed in this region.
However, if investment is a key criteria and objective of the purchase, history has shown that the most stable global markets for consistent and stable real estate price growth are those in more established business cities around the world.
If we look at global property markets since the global financial crisis, those markets that saw the smallest decline in value following the crash include London and New York. These were also the same cities that recovered quickest and are now experiencing prices at or above their peak levels.
These cities have several things in common. Firstly, they are both growing in status as significant global economy business hubs with GDPs increasing year-on-year. Secondly, they are both heavily congested. Thirdly, there is a huge undersupply of quality residential housing, with very limited space to build and a growing demand from young professionals for rental property.
These economic fundamentals are major contributory factors in consistently driving up prices over the medium to long term. This is validated when you analyse the performance of both London and New York residential property prices over the past 30 years.
Prices can be seen to have consistently risen over that period on a steady but stable basis year-on-year, with just a few odd flattening of rates for short periods of a few months. Overall, it shows constant and sustainable growth.
The ripple effect
With property values in London and New York having undergone significant increases since 2009-10, it is important to analyse these global economic cities further to understand where investment potential will come from in these locations over the coming years, given the same economic divers that underpin them.
What we are seeing is that by far the largest price upticks have predominantly occurred in Manhattan in New York and zones one and two in central London.
Investors in London and New York are now, therefore, looking at locations that have not yet seen the price hikes that areas around Central Park in Manhattan and Chelsea and Kensington in London have. They are looking for the next location that is well-positioned from a commuting perspective, while also offering easy access to all the key facilities and amenities of the city.
More importantly, they look at those areas that are identified as not having seen the price increases prevalent in the more central areas and, therefore, have significant potential in terms of hidden and future value over the coming five years or so.
Locations that meet this criteria include such places as Greenwich, Deptford, Slough and Woolwich in London, all of which will benefit considerably from regeneration investment over the coming years as well as the new Cross Rail Project and Docklands Light Railway system improvements due for completion in four to five years.
In New York, locations such as New Jersey, Queens and Brooklyn are very well positioned in terms of ease of access to Manhattan, with excellent transport links, but have not yet seen the huge price increases that Manhattan has enjoyed.
As rents in the central areas of London and New York also start to become more expensive, tenants and investors alike are looking at other locations in search of value, without compromising their lifestyle.
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Source: Shane Marioni, Special to Property Weekly
The writer is a Senior Property Investment Consultant at IP Global