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As the Dubai property market has started to mature over the last couple of years, industry experts have looked on with interest to see what factors have the greatest effect on real estate valuation, selling prices and occupancy levels.
Here, Adam Price, Managing Director of specialist investment company Select Property Middle East, discusses the different elements affecting the Dubai property market and the pressures facing the sector today.
A sustainable market
Properties in Dubai have been selling for a decade so it is really encouraging to see the emirate's real estate market transform in recent years and become much more sustainable.
A seismic factor in the creation of a mature property market in Dubai is the number of effective policies implemented by the government to prevent another bubble from forming, and take the steam out of what was becoming a very heated market.
The Central Bank mortgage cap, restrictions on off-plan developments and the doubling of transfer/registration fees have had a significant impact on speculation in different areas.
What we must remember is that in 2008, the Real Estate Regulatory Agency (RERA) had barely been formed and developers were practically unregulated, whereas now, it is firmly in control.
Of course, there is always room for improvement when it comes to property regulations, but what RERA has done is proof that Dubai has learned from its past, and is successfully taking the necessary steps to become a more regulated and transparent marketplace.
In addition to these regulatory measures, the focus in Dubai over the past few years has shifted to ensure that the emirate is delivering the infrastructure to support the residential and commercial buildings that were constructed during the boom years.
For example, the eagerly anticipated Dubai Tram is going to be a valuable addition to the emirate as it provides another modern public transport system which is a critical requirement for any major global city.
Buying habits have also changed as people are starting to view Dubai as a location to live for the long term rather than a place to stay for a couple of years. This is evidenced by the natural movement of families away from apartment living towards suburban villa developments, although the city-center towers will always be popular with young professionals.
The consequence of all these factors is that property prices in recent years have recovered quickly and then gradually slowed to a much more sustainable level which indicates a maturing market that is based on end-user demand, long-term investors and resilient rental returns.
Threat of oversupply
At this stage, there is no oversupply. Although there is an increasing number of new development launches by large private companies, we are still way below the levels of supply seen during the last boom. Due to Dubai Land Department's (DLD) restrictions imposed on off-plan developers, only those that are cash-rich are able to enter the market at this stage, which is serving to limit the new supply and ensure that newly launched schemes will deliver.
Developers have also learnt from the last cycle and now releasing larger projects in phases in line with market demand.
Due to the sheer volume of investors in the UAE, the biggest risk is if a large number were to cash in on their investments at the same time as there is not enough strong end-user market at present to absorb the stock.
However, the likelihood of this happening is extremely slim, especially while property prices continue to increase and the population of potential tenants continue to grow. Due to a more structured mixed-use district, the ratio between investors and owner-occupiers is also starting to change.
We are finding that the secondary market now has a comfortable split between end-users and investors, which is a very encouraging indication that the population in Dubai is becoming much more stable.
The Dubai property market landscape
• Developers seem to have learnt from the last cycle and are releasing larger projects in phases in line with market demand
• The focus in Dubai over the past few years has shifted to ensure that the emirate is delivering the infrastructure to support residential and commercial buildings, e.g. the Dubai Tram
• Property prices in recent years have recovered quickly and then gradually slowed to a much more sustainable level which indicates a maturing market based on end-user demand, long-term investors and resilient rental returns
Read on why Dubai remains an exciting investment destination
Source: Cleofi-Krista Capili, Special to Freehold