Dubai market less volatile, more predictable

Dubai market less volatile, more predictableDeclan King

The theory of market maturity is helpful in trying to understand the changes and cycles in a real estate market, which often go hand in hand with a country's economy and legislation.

Maturity is classed by the degree of change in, for example, the range of investor and developer opportunities, market transparency, flexibility of property interests, know-how of market stakeholders, regulation of market practices and property rights in a built environment. Over the years, property markets develop and grow in terms of features, practices and mechanisms.

Dubai has a relatively young real estate market. It is only since the last decade that freehold ownership has been available and all nationalities are permitted to buy property here. However, the market appears to be maturing already and transitioning into the next phase of its evolution, offering several advantages to all stakeholders.

The emirate's property sector is unique in its composition. Almost 90 per cent of the population are expats, unemployment is near zero, it is tax free and located just a few hours away from Asia, Africa and Europe.

The real estate market has evolved over the past 15 years, going through major milestones since 2002 when the freehold decree was issued, followed by exponential growth four years later as the foreign ownership law was passed. Then came the recession and its resultant impact on the region's real estate, causing many properties to lose more than half their value. The past few years have seen the market go through gradual and steady recovery, signaling the completion of Dubai's first full property cycle.

In 2007, the number of project launches rocketed, promising to add more than 70,000 new units a year. End users competed with investors as speculators looked to flip for quick gains, after which prices increased by nearly 80 per cent.

The authorities issued a number of important rulings such as the escrow account law, protecting the buyer in the case of off-plan purchases. The Real Estate Regulatory Agency (Rera) was set up to monitor, control and register all real estate transactions in the emirate.

In 2010, the strata law was introduced, giving property owners the right to jointly manage their buildings or communities, as well as obliging developers to be more transparent. To promote more transparency, the Dubai Land Department (DLD) published daily transactions on its website, thereby allowing extraction of price data for comparisons to previous years and other locations. Rera announced Ejari, a digital system where all lease contracts for Dubai properties are recorded, safeguarding the legal rights of tenants and landlords and providing a more accurate rental index.

With the market in recovery mode in 2013 followed by the Expo 2020 bid win, further controls were put in place to protect the market from overheating. The mortgage cap law introduced a maximum loan-to-value ratio of 75 per cent and DLD registration fees were doubled to 4 per cent.

Over the past couple of years, Dubai's real estate market appears to have gone through a mini cycle, from a peak in 2014 to self-correction later that year with prices stabilising last summer.

The market now appears to be maturing further — it is relatively more stable, less volatile and, therefore, more predictable in the short or medium term. Past performance offers investors some insight into the market's dynamics and a helpful rule in trying to gauge future trends. Most commentators feel this stability offers both buyers and sellers the benefit of a calmer market where decisions can be made in a much less rushed fashion.

Developers have earned reputations based on their track record of delivery and how well their stock has stood the test of time. Purchasers buy with increased confidence and pay a premium from names they trust.

Additionally, the success of the Dubai new home market offers consumers increased choice by way of location, design, specification and payment plans. Developers who have witnessed the market trends are more experienced to deal with any unexpected changes. Transparency is also increased based on the ease with which property can be sought, bought and valued, which also means less risk for any potential buyers.

Dubai real estate is seeing relatively new neighbourhoods developing their own community identity and enjoying increased services and infrastructure such as retail facilities, schools and transport links. This provides potential purchasers with the valuable advantage of having everything in place and knowing the area before they buy.

Regulations and laws have been passed to ensure safer transactions, increased clarity and improved protection to everyone involved. Now, all stakeholders can be more aware, educated and responsible in their decision-making.

Check out the new developments which will change the visual appeal of Dubai in different ways

Source: Declan King, Special to Property Weekly

The author is Director and Group Head—Real Estate at ValuStrat


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