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Market surveys have revealed that rental and sales prices in most residential areas in Dubai have dipped during the second quarter of 2015. But Laura Victoria Adams, Managing Director of Carlton Real Estate, feels it is not time for the stakeholders in the real estate industry to press the panic button be-cause the fundamentals are strong enough.
As always, when there are new off-plan launches, it takes away money that would be invested in the resale property market, but what is good is that it gives Dubai a secure future for the next four to five years.
At the moment, everyone has a different opinion of the market. Prices have become more realistic. There are a couple of reasons for the prices to have stabilised.
Global currencies have had a big effect, with the euro and Russian ruble being very unstable.
The Expo 2020 hosting win pushed prices up at the end of 2014. But, these are coming down with the sellers and landlords’ realisation that the win will not have a big influence on the buyers for some time.
Prices have also come down so that the buyers can afford the elevated fees involved in buying a property, with fees going to an average of 6% per purchase, with agency and Dubai Land Department (DLD) fees.
First-time buyers and some investors have been pushed out of the market with the change in the deposit required for mortgages set at 25%.
Supply and demand
We will have 13,941 new residential units entering the Dubai market and around 1,227 of them are located in Dubai Marina. This will obviously impact the prices in the area.
When a new building is handed over, you have around 400 new owners either looking to sell or lease the properties. We rarely have people moving in as end-users of new off-plan properties. When you have these many owners competing in a small market at the same time, prices are bound to decline to ensure occupancy.
If we do not have more residents coming to Dubai next year, you will see the same thing happen, with a decrease in rents in some areas. We are expecting 41,115 new units coming to the market. Most of these will be located in Dubailand (7,333), Dubai Sports City (5,141) and Business Bay (4,306).
There is a general cycle in Dubai that whenever rents are high in areas like Dubai Marina, Palm Jumeirah and Downtown Dubai, people move to Dubailand and come back when the rents have stabilised.
This could be the reason why rental and sales prices in areas like the International Media Production Zone (IMPZ) and Dubai Silicon Oasis have escalated.
When rental prices in these areas rise, the return on investment (ROI) also jumps up. Currently, you can get around 9-10% return on a small outlay of around Dh500,000-Dh700,000 to purchase a property in these areas. This is very attractive to investors and first-time buyers.
London versus Dubai
All the global markets are witnessing different trends at the moment. London is hitting another peak where you will struggle to get a decent one-bedroom apartment on New Kings Road, SW6 for Dh2,700,000 (around 475,000 pounds).
People buy in London more for the appreciation of the property in the long term rather than the rental return.
For instance, if that Dh2,700,000 home on New Kings Road was bought for Dh899,600 (157,000 pounds) in 2000, the owner made a profit of Dh1,822,000 (318,000 pounds) in 15 years. The gross rental income for the year for this property without any additional expenses is Dh114,676 (20,016 pounds) which is about 4%.
In Dubai, for the same money of Dh2,700,000, you can buy a sea-facing two-bedroom flat which can be rented yearly for Dh180,000, giving you a gross 6.6% ROI. If the price of the property five years ago was Dh1,570,000, the owner will make a profit of Dh1,130,000 if he sells it today.
If you look at the above two examples, Dubai comes out on top with regard to both appreciation and ROI. The rental return of a Dubai property is higher by 2% compared to London. If you are looking to sell, you will make nearly the same profit in five years as opposed to 15 years in London.
The operator and the location hold key to investing in hotel apartments. Many people who have invested in hotel apartments in Downtown Dubai and placed their properties in the hotel pool have received generous returns. Many of the investors with hotel apartments in other areas have not done so well as they rely on occupancy rates. When investing in them, it is essential to cross check if there are any additional charges you will incur besides the service charges. Also, check the occupancy rates of the property in the last one year.
Source: S. Dhar, Special to Freehold