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Do current market conditions in the Dubai property market favour the buyer or the seller?
New supply, combined with slowing demand and low oil prices, will put sales prices under pressure. Developers have reacted to the current market conditions by introducing greater flexibility in payment plans as well as reduced deposits and mortgage availability. These initiatives are in favour of the buyers. The trend of falling prices in Dubai began in 2015. This is expected to continue this year, albeit at a more moderate pace, as rates in several developments have already declined to encourage the conclusion of transactions. With several off-plan projects coming closer to completion, we expect renewed interest in these properties, leading to higher transaction levels. As projects are completed, the LTV (loan to value) mortgage ratio offered by banks also increases from 50 to 75 per cent as property transitions from off-plan to complete.
What local or regional factors could impact the Dubai property market in the short, medium and long terms?
Substantial supply expected for delivery in 2015 was delayed and is likely to be handed over within the year. This increase in supply is expected to see both rental rates and sales prices come under further pressure.
Dubai’s off-plan market suffered the most last year, particularly product launches in secondary locations by third party developers, despite attractive incentives offered in terms of extended payment plans and price reductions.
Government initiatives totalling to Dh300 billion have been announced and will be spent on diversification in various sectors. Plus, major projects such as the Dubai South, Al Maktoum International Airport and Expo 2020 venue will all continue to create employment opportunities and, therefore, drive demand for housing in the medium to long term.
What global factors could have an impact on the Dubai real estate market?
Dubai’s property sales market in 2015 was challenged by the strong dollar and a generally negative global economic outlook, exacerbated by continued low oil prices which affected investment appetite from traditional overseas buyers especially from Europe and Russia. Residential rental yields are currently averaging over 7 per cent, which is attractive compared with other cities. With a strong possibility that a portion of under-development projects may be curtailed due to current market conditions, this will allow stock to be absorbed and boost sales opportunities. The US Federal Reserve’s rise in interest rates in December 2015 could lead to slightly higher finance and lending costs. With a trend arising in many other mature markets whereby governments are introducing or increasing taxation measures, buyers will look more towards Dubai as the transfer duty is only 4 per cent and there is zero capital gains tax.
What role is the construction spend on Expo 2020-related infrastructure playing today. How will that evolve going forward?
If we look at the medium and long term, the outlook is more positive, with demand more than likely to grow in line with the progress of key infrastructure projects currently underway such as the Al Maktoum International Airport and the venue of the Expo 2020.
Referring to the previous question, a range of government initiatives has been announced and will be spent on the diversification of the different sectors of the emirate.
This is expected to invariably boost the real estate sector.
Current ongoing and major projects in Dubai are all interlinked. These will continue to create many job opportunities and, therefore, increase the demand for housing for employees and investors in the near future.
Question of the Week:
When do you see sales momentum and end-user interest picking up in the emirate’s residential property market? Which segment of Dubai’s residential market is the most active now? How long will this trend hold?
For now, property owners will have to make adjustments in terms of rental expectations with better payment flexibility. As usual in cases of increased supply, better quality, well-managed or good-value-for-money properties will be able to achieve higher occupancy levels than others.
We are currently witnessing buyer preference focused on more affordable mid-market products as evidenced by the take-up in recent launches targeting this market segment. This is a combination of affordable price tags and attractive payment plans offered by developers.
As in 2015, for this year and into 2017, the preference will be for smaller units compared to larger ones, with stable transaction levels for studio and one-bedroom apartments as well as smaller one-bedroom, two-bedroom and three-bedroom townhouses and villas.
Sales for large, premium units are likely to remain subdued this year as buyers are few and far between.
We have also witnessed investors favouring more traditional and well-known areas such as Palm Jumeirah.