Dubai real estate market sentiments

A look at the trends and current status of the marketUmar Bin Farooq, Director, Ottomans International

The Dubai real estate market is witnessing a slowdown in transactions. A number of factors that have contributed to the downward trend are the strength of the US dollar, Russian sanctions, Eurozone issues, International Monetary Fund’s less-than-promising outlook on the global economy, lower oil prices, several property launches, doubling of the transfer fee and the Central Bank’s restriction on home loans.

It is a well-known fact that property investment does not require market timing; issues just increase the potential for obtaining a good deal.

Although property prices have dropped this year in comparison to those of 2014, the trend is not universal. The correction currently being experienced in the Dubai market is a natural thing. It is a boon to long-term investors as it makes their investments very attractive, allowing them to still achieve between 5% and 8% yield.

Alternatively, some investors who are based in the Eurozone are more keen on selling as they are making up some of the shortfalls through better currency exchange rates.

Today’s investors are well equipped with the insights of the market and understand its dynamics, which may directly or indirectly influence property trends. The major credit of this goes to the Dubai Land Department which has been successful in regulating the market, introducing investor protection laws and regulating off-plan properties. These have further solidified the fundamentals and strengthened the legislative structure of the real estate sector.

The Dubai real estate market has all the right elements to rejuvenate investments and the capacity to attract local and foreign investment.

We are witnessing renters itching to buy their own homes as rents continue to increase and as interest rates offered by banks are getting attractive. We are expecting between 15,000 and 20,000 residential units to be handed over this year, which may bring a bit of an oversupply in the market.

A minor downward trend in rentals is expected especially in projects located towards the outskirts of the city, but this trend will not apply to all. Downtown Dubai, Dubai Marina, Palm Jumeirah, Emirates Living, Business Bay, Jumeirah Lakes Towers and Dubai International Financial Centre will be less vulnerable as demand in these well-established areas will remain high.

On the other hand, we are expecting the resale market to witness a downward trend as new private developers have started offering a variety of incentives in the form of payment plans skewed towards completion. Some developers offer payment schemes after handover to make property investment more attractive to the buyers.

The residential market is heading towards a phase of correction. End-users (mid-income group) and long-term investors are the next driving force, which is very healthy for the market.

Ever since the authorities have successfully restricted property speculation, the demand for property has become more real. Although it is neither possible nor desirable to keep the speculators out of the market in the larger scheme of things, managing the supply is a key element.

Most of us do not differentiate between price gain that results from appreciation and that which results from inflation. Appreciation occurs when the demand for a specific type of property, location or both grows faster than the supply of competing properties. Inflation tends to push property prices up even if the demand and supply are balanced.

It is imperative that market inflation is controlled and the supply-demand factor is looked into by developers and authorities so that the market can diverge from the justifiable long-run equilibrium.

Source: Umar Bin Farooq, Director, Ottomans International


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