Major challenges Dubai faces in achieving sustainable property growth

For a sustainable Dubai property marketJohn Stevens

Question of the Week
What are the major challenges that Dubai faces in terms of achieving sustainable growth in its property market?

A continued focus on creating and maintaining a transparent investor environment, in which all parties are protected and where legislation and regulations are clear and unambiguous, is essential to driving sustainable real estate sector growth in the future.
All industry stakeholders, such as developers, brokers and others, also need to act responsibly and cautiously going forward in order to avoid another property asset bubble.
Curbing the number of speculators is a little more challenging. The smaller the down payment and the more relaxed the payment schedule are, the more attractive the project becomes, especially if market liquidity is restrained.
Many Dubai-based developers are able to maximize their sales by offering extremely attractive payment plans.
In short, the implementation of a relevant mortgage law and responsible mortgage lending by retail banks, combined with sensible payment plans and reasonable resale periods enforced by developers, will ensure a sustainable future for the UAE real estate market.

What is your outlook on residential price developments in Dubai for the remainder of the year?
The second quarter of this year saw a continuation of the slowdown in the first quarter residential sales performance, with the market witnessing marginal growth, up 6% and 3%, respectively for apartments and villas in the second quarter of this year.
Over the next two years and beyond into 2016, Asteco research indicates that we should expect residential apartment and villa rental increases to continue steadily.
However, this is at a more gradual rate compared with the last 12 months as new supply enters the market, particularly in the next three to five years.

Which property sectors are likely to benefit from the Expo 2020 in the immediate term, if any?
The Expo 2020 will naturally boost Dubai’s economy and ensure that its global real estate profile is once again an international talking point.
The areas of real estate, transport, tourism, trade and retail will undoubtedly reap the benefits and flourish in the coming years. Currently, there are several developments being planned near the event location.
Notwithstanding macro-economic and political issues, and extraordinary supply/demand dynamics, property sales prices and rental prices should continue to rise but at more moderate levels (single digit) than we have seen in recent months.

What regulatory changes would strengthen investor confidence in the Dubai real estate market?
Curbing speculative property purchases and limiting the volume and loan-to-value levels of mortgage credit granted to buyers are two simple but effective solutions. The UAE Central Bank’s new mortgage law aims to regulate the sector and prevent a similar crisis from happening in the future with the mortgage cap just one of these types of initiatives. One such current market example is 20% deposit within 30 days and 80% balance on completion. This plan undoubtedly attracts a high volume of eager “flippers.”
Time to completion is another key factor. A project that is 100% ready will not be as attractive to speculators as an off-plan project because of its inability to gain significant capital growth and capital appreciation before flipping the unit.
The third factor is the assignment criteria as set by the developer, i.e., when the speculator is permitted to resell. Currently, this can be set anywhere from 10% to 50% of the purchase price. Emaar, in particular, has increased its requirement to 40% before it allows a resale; thus, slowing down rampant speculation.

Is there evidence that developers have learned from the past and are focusing more on phased projects?
The combination of a stronger, more focused and investor-friendly legislation, combined with the portfolios of those developers who “weathered” the crisis, is evident in the current pipeline scenario of Dubai’s real estate market.
This year, we have seen a number of developers launch new projects, many of which are phased. This style of “managed release” is indicative of a change in approach to off-plan sales.
In the last two years, there has clearly been a focus on the delivery of under-progress projects, which has been instrumental in helping restore market confidence.
With previously stalled projects now either being dusted off or launching in the phased-release format, this is both fuelling demand and responding to new interest driven by economic activity as well as future events such as the Expo 2020 hosting.
The Expo event is expected to augment demand from both new residents as well as investors. In the current scenario, real estate developers are launching projects around the event site.

Here's what other experts say, Dubai Property Market: Avoiding the ruse

Source: John Stevens, Special to Freehold
Managing Director, Asteco


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