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Dubai's fast-paced property market often leaves potential buyers with mixed feelings — an awkward combination of eagerness and uncertainty. What if we had an idea of how our investment could look like in five years?
Property has always been an important part of a balanced investment portfolio, but as an illiquid asset, it needs to generate a fair rate of cash return and bear minimal risk to be worthwhile. Here's a look at Dubai's residential property market over the past five years to get an idea of where it is headed.
A quick review of 2011 sales prices on the Palm Jumeirah and Dubai Marina shows rates as low as Dh650 and Dh800 per square foot respectively, rising by more than double to nearly Dh1,900 and Dh1,800 per square foot last year.
In Downtown Dubai and Business Bay, average prices in late 2010 stood at about Dh1,300 and Dh725 per square foot respectively, climbing to about Dh2,600 and Dh1,600 per square foot last year.
On the other side of the coin, sales prices in midmarket communities such as International City hovered around Dh300–Dh350 per square foot in 2011, gradually doubling to Dh700 last year. In Discovery Gardens properties that cost Dh405 per square foot in 2010 are worth Dh775 today.
Moreover, the fact that rental yields in Dubai now range from 5.5-6 per cent versus 7-12 per cent in 2011 suggests a more sober market that still offers better annual return than the 3.5 per cent in central London.
Clearly, those who acquired property in Dubai four or five years ago have made handsome profits. This is not to say that past performance is a reliable indicator of future success. But it does imply a steady increase in real estate prices that could continue in the years to come.
Like other international commercial hubs, easily accessible properties are often the quickest to find tenants in Dubai. Studios, for instance, are being increasingly sought by bachelors, students, business travelers and even couples on a limited budget. Consequently, this type of apartment offers some of the best returns in the emirate. In the first quarter this year, the biggest increase in rents across Dubai was in the studio apartment category, which had risen by as much as 15.29 per cent.
Another investment option lies in areas close to free zones, which typically see continuous demand from employees seeking convenient accommodation. Many fashion and retail giants, for example, are gearing up to open in Dubai Design District, including Chalhoub Group and Jumeirah Group, as well as global brands such as La Perla and Hugo Boss.
It is thus worthwhile to consider properties in nearby communities, such as Downtown Dubai and Business Bay, where the new Habtoor City project is emerging.
After location, water views have to be the second most desirable feature of any apartment. Soon such views will not be limited to Dubai Marina and Jumeirah Lakes Towers, since work has now begun on the Dh700-million Dubai Wharf, a project that will offer 509 apartments close to Dubai Creek. This project, along with other mega developments in Deira, are set to transform the oldest part of Dubai into a JBR like destination.
To form a realistic picture of the future of the property market, we must also take into account economic factors, most prominently the recent drop in oil prices, which fell by almost 60 per cent since June. The unexpected plunge raised concerns over its impact on the UAE's real estate market, whether investor sentiment, corporate expansion plans or purchasing power.
In turbulent times, however, it's easy to forget that two-thirds of the UAE's GDP now comes from non-oil sectors, mostly from Dubai. In addition to diversifying revenue sources, the emirate has consistently worked on enhancing the quality of life, be it through new transportation systems, retail facilities or green areas.
As 2014 drew to an end, we saw the highly anticipated 14km Jumeirah Corniche open for public, and the City Walk development with its 1.3km promenade thrive with visitors and shoppers.
By 2018, we should see the unveiling of the Bluewaters Island in Jumeirah Beach Residence — set to accommodate the world's largest Ferris wheel — and Dubailand's IMG Worlds of Adventure, which will span 1.5 million sq ft and has been dubbed the world's largest indoor theme park.
And let's not forget the Dubai Water Canal that will cut through Shaikh Zayed Road from Business Bay and into Jumeirah, transforming all surrounding areas. We can also look forward to the 1,200km Etihad Rail project, now targeting completion by 2020, which will connect Dubai to Abu Dhabi, as well as link the UAE to the Saudi and Omani borders.
Within the city, the Dubai Metro's newly approved Route 2020 will extend the Red Line to the World Expo 2020 site, boosting sales and rentals in communities served by the new route, including Discovery Gardens, Al Furjan, Jumeirah Golf Estate and Dubai Investments Park (DIP). It will serve more than 240,000 residents.
Speaking of DIP, which itself contains a number of residential communities, the development is undergoing a major expansion that will see more than 1,150 residential units added by 2018. We already know that the supply of new residential properties, estimated at about 22,000 units by the end of the year, could have a deflationary impact on sales and rental.
Should we be worried? Probably not, as the picture will be drastically changed by 2020, when Dubai's urban population is forecast to grow by 50 per cent to reach 3.4 million, and when 20 million tourists are anticipated to visit the city annually.
Oversupply or shortfall?
These numbers are far from being overambitious — the emirate's population has already expanded by 50 per cent since 2009, while Dubai International Airport recently surpassed Heathrow as the world's busiest airport. In fact, we wouldn't be surprised if there was a housing shortfall by 2020, which would explain the rush in the real estate market.
Ultimately, what differentiates the current batch of projects from that of 2008 is the Expo 2020. Indeed, with the global spotlight now shining on Dubai, the emirate cannot afford delays to any projects.
Positive pressure has led to unprecedented momentum at government level, which, together with the ongoing drive to protect the real estate market, reassures us of the bright outlook we are hoping for.
Source: Niraj Masand, Special to Property Weekly
The writer is Director at Banke International Properties, a boutique real estate brokerage based in Dubai. With extensive and broad experience in the industry, Masand has worked for some of the most prestigious real estate companies and developers in the emirate