The savvy buyer

As Dubai’s property market shows signs of maturity, investor motivations are also changingGulf News Archives

Whether boom time or tough downturn, Dubai’s property market has always been in the spotlight. Ever since the sector opened to expats over a decade ago, real estate as a popular investment opportunity and the desire of owning a dream home in the emirate hasn’t diminished.

The market has since changed greatly, going through a turbulent trajectory to finally emerge as a maturing entity. So how have buyer demands and expectations changed to reflect this new reality?

Last year end users were trying to negotiate a market spattered with almost weekly new off-plan launches from both major developers and smaller ones alike, sucking almost all the investment money out of the end-user market, says Sammi Adhami, Sales Manager of Espace Real Estate. “These launches, coupled with increasing prices, made for an interesting market, which in the second half of last year was muted as transaction volumes dropped significantly.”

“The local marketplace is showing signs of a maturing real estate market,” says Loshini Lawrence, Head of Sales and Leasing at Dubai Sotheby’s International Realty. “The majority of demand is coming from end users. Therefore, they are looking for properties in completed communities. They are demanding the assurance that comes from an established community with a well-reputed developer. Schools and community centres are key to the needs of young families that are searching for mortgageable property.”

However, when trying to ascertain the shift, there are multiple factors to be kept in mind, as grouping all buyers into one class would be inaccurate. To begin with, when analysing buyer behaviour it is important to determine the nationality, if the buyer’s an end user or speculator, the price the buyer is willing to pay and whether the property is from the resale or off-plan market.

“What we have observed as the property market has slowed since last year are buyers making less expensive purchases of resale units while they wait for the market to pick up,” says Victoria Rushton, Residential Consultant, Green Community Branch at Better Homes Real Estate. “In contrast, the 2014 profile was of a more confident buyer willing to make high-end speculative purchases in the off-plan market that at the time was charging less on transfer fees.”

Mario Volpi, Managing Director of Ocean View Real Estate, says investors were the main driver during the previous years of Dubai’s property market. Latterly, end users or owner-occupiers are now coming to the fore and there are two types of purchases they are likely to make: off-plan and ready property. “The investor falls into a further two-tier category: the buyer who wants an immediate return on investment by renting the property out or the investor who is looking for capital appreciation over the longer term and is more likely to buy off-plan.”

A deeper analysis of the market reveals some broad trends that cut across nationality, price brackets and end-user motivations.

Not in any hurry

Even though it’s still early in the year and there is no available statistical data, Rushton believes there is a definite drop in urgency. “What we have seen so far among buyers purchasing for

the long term [10-20 years], is less urgency to finalise the deal, and greater consideration on what and where to buy, decisions influenced primarily by the falling price of oil and the corresponding challenge this is having on market confidence.” However, she says there is improved market confidence for the shorter-term buyer who is taking advantage of greater stability of property prices and transfer fees.

“This sense of urgency or lack of it in the market has influenced the term of investment,” says Simon Gray, Managing Director of Chester-tons Middle East and North Africa. “The investment horizon has clearly changed from the early days of the property boom in 2006. As opposed to 2006-2007, most buyers now have a medium-term investment horizon and are not looking at flipping property.

“Regulatory measures and Dubai’s solid positioning as a popular tourism destination has helped in shaping the mindset.” Gray says this year will see more end buyers than investors. If prices correct further, the market will see more tenants going for homeownership.

Going off-plan

“Growing interest in the off-plan market is a new characteristic of the 2015 buyer in that it’s an option many wouldn’t have considered before, particularly for the more conservative ones [or] end users, who felt off-plan purchases were too speculative,” says Rushton. “As developers add more financial restrictions on the resale of off-plan units, sometimes up to 30 per cent, and the Dubai Land Department [DLD] incorporates its fees, many end-user buyers might be reluctant to choose the off-plan route.”

The off-plan sector was strong in the past two years when major developers, especially Emaar, were launching projects on a weekly or biweekly basis throughout the year. “This took a lot of money out of the ready property market. Nonetheless this year will likely see continued demand in this sector, but focused towards projects that are further into the construction phase,” says Adhami.

Many of these developments offer good prices per square foot, but buyers have to wait longer for the project to be completed — usually around one or two years. Take for example Emaar’s

Panorama development on the edge of the Emirates Golf Course. After they were handed over, the apartments there have been trading quickly and at twice the price of the original off-plan rates. It pays to be patient, says Adhami.

Prices cooling down

Given the current market scenario, both end users and investors are benefitting from significantly lower prices in all major developments. “An average figure for this reduction in value is around 10 per cent and more in some areas. So the end users are feeling more comfortable about coming back into the market and putting their roots down,” says Adhami. “Investors are also benefitting from this price reduction while rental values haven’t really changed, so the return on investment has been pushed up and it is possible to get a 6 per cent net return or more, which is attractive.”

Value products

Gray is of the opinion that product choice will be another key trend this year. “Buyers will have a lot to choose from in terms of location, amenities and price

range with new projects,” he says. “Access and community services will be key decision factors for projects that are in a similar price range. Regarding off-plan developments, potential buyers will look for unique factors in projects. Simple vanilla projects will not sell.”

And when making a choice, developer reputation will be a key consideration for off-plan projects. “We have already seen last year that projects by reputed developers have been sold out at launches. However, lesser-known developers are strug-

gling,” says Gray. “Attractive and flexible payment plans [with most of the payments made after or near completion] might attract buyers when developer does not have a track record. This trend will continue this year and we will see more flexible payment plans.”

Always in demand

Despite the new trends shaping the market, there are some elements that remain non-negotiable to the buyer, such as good facilities and amenities, well-maintained buildings and attractive financing options. Even though good facilities are sought after, most end users also look to the future for when they will sell on.

“Maintenance of a property is paramount and the cost of the same is now more important in light of accidents in the past,” says Volpi.

The demand for mortgage can only grow and this is already being felt in transactions at the DLD. “End users were hit unfairly when the mortgage caps were introduced in 2013,” says Volpi.

“Putting down a 25 per cent deposit, when added to all the fees, is a tall order for some, so increasing the loan-to-value ratio from 75 per cent to say 80 per cent would be a dream come true for owner-occupiers.”

And of course there is location. “Living in an area that is convenient in terms of work or schooling is a must and an improvement for quality of life,” says Volpi. “Knowing that future developments such as road or transport infrastructure is coming to an area where you live will not only improve the day-to-day living but enhance the chances of resale in the future.”


Source: Sanaya Pavri, Special to Property Weekly


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