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Despite flatlining sales and rental markets, the housing sector in the UAE is maturing and stabilising, according to property experts. International property consultancy Cluttons has recently released reports focusing on various regional markets, including Dubai and Sharjah, all of them bound by a common thread: the UAE's cooling market.
Factors such as the plummeting value of oil and the near historic high of the US dollar, to which the UAE dirham is pegged, has meant there's less liquidity from regional and international investors limited by unfavourable exchange rates. And while this is not desirable news for speculators, Faisal Durrani, International Research and Business Development Manager of Cluttons, says there's reason for optimism. Successful regulations and sound fundamentals are ushering in an age of maturity — something very attractive to long-term international investors.
Durrani says Dubai is rapidly reaching the end of its second property cycle since opening up to an international market. ''In Dubai we're rushing to find the bottom of the market,'' he says. ''It does appear we've rushed through this second cycle, [which has been running] probably between 18 months and two years.''
The emirate saw a small 3.4 per cent increase in average house prices last year, vastly down from 51 per cent in 2013. Values are now 19.4 per cent lower than the market peak in 2008.
The trend is similar in the rental market, which saw prices increase an average 0.4 per cent over 2014—with a contraction of 0.4 per cent in the first quarter of this year countering any gains.
''From our perspective it's clear that it's been a really rapid cycle but it is quite positive that we didn't surpass the market peak of the previous cycle [in 2008]. The regulations that have been introduced have been exceptionally successful in preventing the market from overheating,'' says Durrani.
In the correction that followed the pre-2008 boom, many investors ''were burned quite badly'' with prices dropping by about 50 per cent thereafter. It has now been just over a year since a new mortgage cap limiting loans to 80 per cent of a property's value for Emiratis and 75 per cent for expatriates came into effect at the end of 2013, around the same time land registration fees doubled to 4 per cent.
''That was the right time to introduce measures to prevent another period of unsustainable growth,'' says Durrani.
While many complained it would price out end users, and Durrani acknowledges it might have been a ''blunt instrument'', he says it has certainly reduced speculative activity for a market that had hitherto expanded at an exponential rate. Developers have also started imposing restrictions on selling to prevent practices such as flipping, Durrani says.
But investors and owners need not worry about the market bottoming out, he says. While in terms of villas alone, there are an estimated 10,000 units due over the next two years, the population should grow by 400,000 in the build-up to the World Expo 2020 in Dubai as more new jobs are created.
Durrani says the competing interests of keeping investments lucrative while ensuring enough housing capacity appear to have been managed well. ''When you match [demand] up against the supply, we're suggesting it should be pretty well matched.''
He also notes the anticipated rapprochement in diplomatic relations between the West and Iran could result in an economic boom for Dubai, which would initially impact commercial property values before flowing into residential property. Iran is widely expected to sign a linchpin anti-nuclear pact with the US on June 30 and come in from the cold.
''When sanctions were introduced ten years ago, the Iranian export market was a huge part of Dubai's economy,'' says Durrani. ''That's obviously faded away and replaced with other things, but we expect Dubai to resume its position as a hub for any international business looking at Iran.''
The development of a healthy affordable housing market, as indicated by a recent Dubai Municipality proposal that would see developers undertake such developments alongside their projects, would lead to a further ''evolution'' of the real estate market.
''The affordability issue I think is core for the UAE across the board. When you've got expats who are now staying for longer and starting families in the UAE, they are all aspiring to live in larger properties that happen to be villas [that] tend to be out of [their] reach financially — so there is still a huge market yet to be tapped into with affordable housing.''
If executed well, this class of housing could draw in institutional investment funds such as pension schemes given the almost inexhaustible supply of customers in this category. All of these factors suggest a healthy outlook for the Dubai property market, says Durrani. ''The market is starting to find its floor and after a period of time you'll see prices start to pick up again and demand rise.''
Across the border in Sharjah, Dubai's steady rental market and Ajman's cheap and abundant residential units have been luring residents away. After a rental market growth of 26.4 per cent in the first three quarters of last year, growth came to an abrupt halt in the fourth quarter, which saw a 0.5 per cent increase, according to Cluttons figures.
''The Dubai market, oil prices, [project] completions in Sharjah, the Ajman stock — you've had a number of things contributing to the overall stabilisation,'' says Durrani.
This has been good news for tenants, with malleable landlords seeking to avoid periods of empty units.
Check out the new homes on Al Wasl which are now open
Source: Amanda Fisher, Special to Property Weekly