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The first two quarters of the year have been slow for the real estate industry—property sales have remained flat, with the rental market showing a slight drop, a far cry from the huge growth seen in 2013. These trends can be attributed to a variety of factors such as falling oil prices, the rising value of the US dollar to which the UAE dirham is pegged, the weakening Russian rouble and political instability in Ukraine.
Other reasons that have had an impact on prices include the stringent regulatory measures introduced by the government to stabilize the market. And while the doubling of transfer fees and mortgage caps have slowed price growth, it also heralds the onset of a much-needed phase of correction. We see this as a step in the right direction to avoid the pitfalls of an unregulated market, as witnessed in 2008, bringing the focus back on end users and genuine investors.
However, these trends will not heavily impact the luxury property market in Dubai. To illustrate this, I would like to refer to the recent findings published in Christie's International Real Estate's latest Luxury Defined report. According to the survey, which was conducted across 80 markets worldwide, there are more high net-worth individuals (HNWIs) buying prime property in Dubai than in top-tier cities in the US or the UK. In fact, Dubai ranks as the most popular city for second home purchases among global HNWIs, who accounted for the majority of luxury sales last year. They are paying anything between Dh3 million and Dh18 million for a prime luxury apartment in Dubai.
These findings are consistent with what we have been seeing. But despite being at the top of the list, there's still plenty of growth possible as far as pricing is concerned, especially when you compare Dubai to other major global cities. Prices in the emirate for prime luxury apartment in areas such as Dubai Marina and Downtown Dubai generally start at Dh2,500-Dh3,000 per square foot and the price for similar property in Central London could be as much as £3,000 (Dh17,000) and upwards. Dubai is also more affordable than Hong Kong, Singapore, Tokyo and even Mumbai, with prices here being anywhere between 25-75 per cent lower.
But it's a lot more than the price that's attracting investors: Dubai's geographical location makes it the perfect hub between Asia, Europe, the Middle East and Africa; its infrastructure is among the best in the world, including one of the world's best and busiest airports; its growing status as a playground for the rich and famous with some of the world's most exclusive hotels and leisure destinations; a large expatriate population; tax-free environment and business-friendly laws are all factors that count. The emirate's government is also committed to making Dubai one of the leading cities of the world to live, work and visit. So it's the long term perspective that comes into play, and it is definitely a sound one when it comes to Dubai.
Driving investor interest
Dubai's continuing initiatives to showcase itself as a premier leisure and business hub have resulted in growing visitor numbers to the city. The emirate has taken the fourth position among 132 top destinations for international travellers in the MasterCard Global Destination Cities Index, following London, Paris and Bangkok. Official figures released by Dubai's Department of Tourism and Commerce Marketing also showed that the emirate received 13.2 million international overnight visitors last year. With all that Dubai has in store in line with its tourism strategy, including the upcoming Dubai Parks and Resorts project with three theme parks that will bring in 6.7 million tourists, around 20 million visitors are expected to come to the emirate per year by 2020.
All of this will continue to drive investor interest in Dubai's real estate sector, and particularly the luxury property category, with many tourists opting to buy vacation homes in the emirate as they become repeat visitors. After all the promise of year-round sunshine, miles of pristine coastline, a dazzling skyline with some of the world's most exclusive landmarks, and uber-luxury shopping and leisure destinations all within a safe environment are hard to resist.
Demand for luxury property is primarily being driven by HNWIs in the UAE, GCC, India, Pakistan and the UK. In fact, the Dubai Land Department figures for the first quarter of the year show that foreigners spent Dh12 billion on property purchases in Dubai. The government's efforts in creating a transparent and efficient system have encouraged international investors to consider buying here. The country's political stability, unlike some of its neigbouring nations, also makes it a safer destination, prompting interest from GCC nationals such as Saudis.
A good return on investment is not the only reason that is driving the purchase of prime property in Dubai. Wealthy buyers who buy luxury property as a primary residence are more likely to see their homes as status symbols and not look at price as a consideration.
The popularity of such prime properties is seen in the premium that people are willing to pay for living in sought-after areas such as the Palm Jumeirah, Emirates Hills, Downtown Dubai and Dubai Marina. We've seen this trend in our own waterfront properties like Marina Gate. The view, location and amenities are important factors.
Maintaining a balance
The demand for such properties will also stay consistent considering all the steps Dubai is taking in anticipation of the World Expo 2020. Huge infrastructure investment, new project launches due to renewed developer confidence, exciting tourism initiatives and retail and leisure projects are all part of the plan, which is expected to bring in about $19.6 billion (Dh71.98 billion).
In the next five years, more than 275,000 jobs are estimated to be created to service the Expo, across sectors such as tourism, hospitality, infrastructure and construction. This will push the population to more than three million by 2020, fuel demand for both upmarket and mid-market properties and balance any oversupply in the market.
Source: Mustafa Pooya, Special to Property Weekly
The writer is Chief Commercial Officer of Select Group