Should you take the plunge and buy property in Dubai?

Should you take the plunge and buy property in Dubai?Image Credit: Supplied

Having been at the forefront of UAE real estate for more than 11 years, witnessing its rise, fall and recovery, I can’t help but feel a bit dizzy at the pace of change and power of sentiment driving this property market. But we are in a much better place now than we were in 2008 and with respect to all those who lost fortunes in the crisis, the crash was most probably one of the best things to happen to Dubai for the longer term.

Had it not exposed the weakness of regulation and lack of control on investors’ money in such a harsh way, it would have taken many more years to realise how vulnerable the system was. Dubai was not immune to global forces, and being a fledgling market, properties were dropped like hot bricks.

Tightening regulations

From 2009-11, the government insulated and regulated the real estate market to ensure greater investor protection, professional practices and tighter control on developers. Today, price fluctuations are less dramatic owing to the cooling measures of 2013 (doubling of transfer fees to 4 per cent and mortgage caps), which were necessary to calm the overheating market.

Prices rose in some areas by up to 50 per cent between mid-2011 and the middle of last year, which sounds like a lot, but that is because prices had increased by small margins in previous years and should not be used to compare with what we have today.

With more restrictive mortgage facilities taking hold by the second quarter last year, end users were forced to abandon their dreams of owning a home due to the much larger deposit required. Sales transactions dropped by 30 per cent year-on-year, but note that around 70 per cent of purchases are still made in cash.

External forces such as the drop in oil prices and weakening of influential  currencies (Indian rupee, euro, Russian rouble) also had a downward effect on activity and it could be argued that the victorious bid for the World Expo 2020 has helped make that decline more grad- ual than it would otherwise have been.

So where are we now?

Warren Buffet once said, “Think long term.” The days of flipping are over. Dubai is one of the most remarkable success stories of our time, which is easy to forget when you’re in the thick of things. There may be a little way more for the market to adjust, but if one has a three- to five-year plan for purchasing a home or making an investment, there is more than a chance of a decent upside in the run-up to the expo.

Despite oil prices having dropped from $115 (Dh422.3) last June to under $100 in September and a low of $50 this February, experts say it should not affect investment and spending targets of the government for huge infrastructure projects over the next two years as the UAE is not reliant on oil and can digest weak prices due to its fiscal strength. Dubai’s growth has been phenomenal over the past decade, and its cosmopolitanism is further demonstrated by the recent introduction of inheritance rules for real property by the Dubai International Financial Centre.

The velocity of off-plan projects coming to the market has created a fear of oversupply, but the argument stands that developers are building to meet future demand. There are mixed reports that between 18,000 and 25,000 residential units are due this year.

The population of Dubai is rising by 5-7 per cent every year, with the current  statistic being around 2.2 million. When taking into account the number of single male workers, the figures go some way to justify the uptake in supply. The number of people from neighbouring countries seeing the UAE as a safe haven and moving their families to Dubai is another factor adding to the emirate’s growth potential.

Take a chance

Why is this a window of opportunity? Along with the obvious benefits of tax-free and relatively simple transactions, Dubai is at a point where decent returns can be achieved compared to other investment vehicles. Buying property has always been a hedge against inflation, as long as borrowing costs remain affordable for the individual. Mortgages are attractively priced at the moment, more so than in 2008 when they were touching 9 per cent a year, and lending books are fairly amenable for most, but this could change towards autumn when interest rates are poised to rise due to changes in US fiscal policy and banks becoming more selective.

House prices are at a palatable level after correction over the past nine months and while there will be no spikes in the near future, there is confidence that prices will strengthen in the medium to long term as the UAE continues to evolve.  Investors see value particularly in affordable housing — although Dubai is becoming an expensive place to live in, many people still want to take up residence here.

In the mass-market districts where capital values are lower, we are witnessing some of the highest rental yields in the world — certain areas achieve 9 per cent net.

For mid-income earners who choose to live in the popular family and professional communities, rents remain high and stable despite forecasts to the contrary, and properties are yielding around 4.5 per cent net. Taking capital appreciation into account, this makes for an attractive proposition.

Strikewhile the iron’s hot

I strongly believe the middle months of this year should be taken advantage of. While the US dollar holds its strength against the British pound and euro, European sellers who have been in the local market for a number of years are viewing this as an opportunity to sell and repatriate their money to Europe at a favourable rate. Hence, negotiations for realistic prices are finally coming to fruition. While the current loan-to-value rates are desperately suffocating for some, a relaxation of these at some point could lead to a rise in prices again as it allows for more potential buyers to partake.

There is no longer space for frivolity when it comes to buying off-plan or any other property. There needs to be a formula to choosing wisely to suit your financial capability. Study the form and look at the area’s history, infrastructure, target audience for renting, accessibility to major hubs, facilities, amenities and schools, number of units coming to the market locally and, last but not least, the developer’s credibility.

If you invest intelligently, there is little risk of the future price not being positive by the time a property is completed and even thereafter. It is impossible to generalise the emirate’s performance when predicting growth rates as there are so many emerging communities that are likely to outperform the mature ones, but some buyers prefer certainty over anticipation.

One thing is for certain, Dubai and its neighbouring emirates have nothing less than positivity to embrace. There are few places in the world where one can invest in property and benefit from excellent equity growth and a good cashflow. The market has slowed since the middle of last year, but this should not be seen as a negative. Indeed, for a buyer it is a good thing because there is now room for negotiation as, dare I say it, this has turned into a buyer’s market. The dizziness is gone, the market is maturing and roller-coaster rides are a thing of the past. We can now see growth patterns that are more in sync with global markets.

For good returns over the medium to long term, one can never expect zero risk, so understand your risk appetite and invest on that basis. Buy while you know the parameters of costs, take advantage of your current bargaining power and jump on the bandwagon to take full advantage of a city that will shortly become one of the best in the world — but with prices to reflect that.

Source: Helen Tatham, Special to PW


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