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While Dubai’s glittering skyscrapers and swanky flats are still a magnet to luxury and holiday home seekers abroad, the overall demand in the market has actually dropped due to a combination of “global and regional issues”, industry officials confirmed to Gulf News.
The realty sector has had some headwinds, including the strong US dollar, persistent decline in oil prices, heightened regional tensions and slowdown in key source markets for investments.
A strong greenback means that buyers from places as far as Russia find it expensive to acquire properties in the emirate. Oil’s continued decline is likewise shrinking the pockets of realty fans from petrol-exporting countries like Saudi Arabia. Consequently, rents and sales prices, particularly in the residential segment, dropped 2 per cent and 11 per cent, respectively in November.
Quoting official data, real estate consultancy firm JLL said the number of sales transactions in Dubai, excluding mortgages and land, declined by more than 35 per cent last year, from 23,000 in 2014 to 15,000 in 2015. The value of these sales also dropped to Dh22.1 billion during the same period.
“The level of sales of residential units in Dubai fell last year from the levels experienced in 2013 and 2014, with this decline being due to a combination of declining sentiment and the stronger US dollar,” Craig Plumb, head of research at JLL Middle East and North Africa (Mena), told Gulf News.
Given the current trends, investment flows from major markets are likely to fall further this year, including those from India, Pakistan and Russia.
“The Russian ruble lost around 50 per cent of its value against the dollar in 2015, while the value of the Indian rupee declined by around 25 per cent. As a result, real estate in Dubai is considerably more expensive for investors from these countries,” Plumb added.
JLL’s observations are consistent with those of other analysts. Emirates NBD’s latest real estate tracker noted the “fastest drop” in new buyer enquiries since it started monitoring the market in April 2015, which real estate agents attributed to “weaker investor sentiment and muted underlying market conditions.”
Will the situation continue this year? Khatija Haque, head of Mena research at Emirates NBD, said the strong dollar and low oil prices “are likely to remain headwinds for the real estate sector in 2016.”
Jesse Downs, managing director and co-founder of Phidar Advisory, which deals mainly with large and institutional investors, said there is indeed a drop in investor interest in Dubai. “Compared to a year ago, appetite for Dubai real estate has decreased, primarily due to regional and global issues,” Downs told Gulf News.
“However, there is still investment demand for the right product at the right price, primarily stable income-generating assets with a healthy yield. But prices are simply not adjusting to the current market reality. Once prices do adjust, then opportunistic investment will absorb inventory.”
The fall in real estate sales, however, does not mean that Dubai’s appeal is weakening for the investors.
Data from the Dubai Land Department showed that 2015 managed to attract Dh74 billion in investments from foreign buyers in 2015. In terms of investment, size Indians topped the list, with 8,756 buyers accounting for Dh22 billion worth of transactions.
The second-biggest spenders were the 4,899 British nationals, with combined property purchases reaching Dh10 billion, followed by 6,106 Pakistani buyers with Dh8 billion.
According to Bayut.com, a Dubai-based property portal, the slowdown has been “wrongly attributed to inherent weakness in Dubai’s real estate sector.”
“Investors have not lost interest in Dubai and are still on the lookout for good opportunities, ones that hold promise of good yields and capital appreciation over time,” Haider Ali Khan, CEO of Bayut.com, told Gulf News.
Khan said there are strong indications that Dubai’s property market is still doing better compared to its peers outside the region.
“Economic diversification has provided stability to Dubai and the UAE. While other oil-backed economies are considering cuts on spending, Dubai is looking to spend more on infrastructure projects,” he said.
“Also, with UAE establishing itself as the headquarters for multi-national companies looking to operate and expand in the region, the local job market has remained relatively stronger and continues to attract expat talent. These factors in-turn have kept the demand in rental residential segment at healthy levels.”
“Finally, there are quite a few exciting projects being delivered in the near future ranging from new theme parks to the Expo 2020 itself. These are unique to the UAE in the region and provide a great opportunity to increase tourism in the country. Those who see and believe in the vision of the UAE are backing it and continue to invest in their own and the country’s future.”
Khan said that things will turn around for the better before the end of the year. “As far as picking up of buying activity is concerned, we have no way of suggesting exactly when the market will hit certain thresholds, but the general sentiment on the street is that things should start turning around in the latter half of this year.”
Source: Cleofe Maceda, Senior Web Reporter, gulfnews.com