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This year has been a difficult year for the real estate market in Dubai. But 2016 is expected to bring better news. Ayman Youssef, Vice President of Coldwell Banker, UAE, shares his viewpoints on how the property market will fare next year.
The Dubai real estate market is going through a slowdown phase where residential sales and rental prices have seen sharp declines since the fourth quarter of 2014.
The new supply of residential units will cause a decline in sales and rental prices in the short term, but the bigger picture is still positive for the real estate market in Dubai.
If the projected economic and population growth in Dubai remains unchanged, we expect prices to stabilise next year.
The correction in sales prices was higher than the rental prices, which improved yields.
The reason why the market is slowing down is because there was a sharp and unrealistic price uptrend which reached an unsustainable point from early 2012 until the first half of 2014.
The implication of low oil prices could lead to an overall economic slowdown in the Gulf region as predicted by the International Monetary Fund (IMF).
The overall global economic slowdown also tends to get investors to adapt a wait-and-see strategy.
Strong dollar (where the dirham is pegged to) against major currencies will make it difficult for foreign investors to enter the market.
We expect 2016 to be a stable year as it is a transition year to be followed by moderate growth if the projected population and economic growth remains the same.
As the month-on-month rate of price decline is not as sharp as before, a majority of property owners are tolerant to hold their assets.
The current price levels are very attractive for buyers who are looking for income-generating properties, or for first-time home buyers who are currently renting.
We are positive about the long-term market in Dubai. Real estate is one of the safest long-term investments as property values increase over time in addition to the income it generates.
There is also a risk that needs to be calculated before entering into buying or investing in properties especially if a unit is mortgaged.
We advise our clients based on their needs, expectations and risk tolerance.
For investors, there are great offers for income-generating properties which could generate a net yield of more than 8 per cent, more than the average global rate. Even if we consider a potential soft decline in rental values, it is still attractive.
For end-users with stable incomes and long-term plans in the emirate, it is a good time to buy as in some areas, the rents can be higher than the mortgage payments.
We do not advise investors with short-term plans to enter the market now.
When foreign investors consider investing in Dubai, they definitely do the math and look at the numbers, but they also consider real estate to be an element within the context of what Dubai offers now and in the future.
Investors understand that the current slowdown is a phase of healthy correction as it is preventing a potential bubble.
They remain confident about the city’s plans in improving the overall living experience of everyone, with ongoing investment in infrastructure in addition to the opening of several theme parks in 2016 and the hosting of the Expo in 2020.
At the current price levels, properties in Dubai offer excellent yields.
And for the price per square foot, properties in Dubai offer very attractive rates compared to properties in prime areas in the US, UK or India.
For prime properties in Manhattan, New York, one would expect to pay three times the price in Dubai, while in Mayfair, London, investors pay five times. For properties in prime locations in Mumbai, India, one needs to cough up twice the amount for a house compared to a property in Dubai.
Tips on buying
· Estimate your budget. Take into account all costs like down payment, agency and Land Department fees, bank charges and others
· Work with a trustworthy and knowledgeable real estate agent to reduce the stress of the process
· Study the developer’s credibility, credentials, reputation and after-sales service
· Ensure the seller has the title deed or Oqood (in case of off-plan properties). Once decided on a property, prepare a sales and purchase agreement, and review the terms mentioned
Source: S. Dhar, Special to Freehold