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A continued focus on creating and maintaining a transparent investor environment in which all parties are protected and where legislation and regulations are clear and unambiguous is essential to driving sustainable real estate sector growth for the future.
All industry stakeholders, such as developers and brokers, have a role to play by acting responsibly and cautiously going forward in order to avoid another property asset bubble.
Curbing speculative property purchases and limiting the volume and loan-to-value levels of mortgage credit granted to buyers are two simple but effective solutions.
In October 2013, the UAE Central Bank announced a new mortgage law to regulate the sector and prevent a similar crisis from happening in the future with the proposed mortgage cap just one of these types of initiatives.
Curbing the number of speculators is a little more challenging; the smaller the down payment and the more relaxed the payment schedule, the more attractive the project becomes – especially if market liquidity is restrained. Many Dubai-based developers are able to maximize their sales by offering extremely attractive payment plans.
One such current market example is 20% deposit within 30 days of signature and the 80% balance on completion in 2016, and this type of flexible payment plan undoubtedly attracts a high volume of eager ‘flippers.’
Time to completion is another key factor; a project that is 100% ready will not be as attractive to speculators as an off-plan project because of the inability to gain significant capital growth and capital appreciation before flipping the unit.
The third factor is the assignment criteria as set by the developer, i.e. when the speculator is permitted to resell. Currently, this can be set anywhere from 10% to 50% payment of the purchase price.
Emaar, in particular, has increased its requirement to 40% on some projects before they will allow a resale, thus slowing down rampant speculation.
Sustainability is about planning for the future, so what does Dubai’s 2016 real estate market look like?
Over the next two years and beyond into 2016, we expect residential apartment and villa rental increases to continue steadily but at more gradual rates compared to the last 12 months as new supply enters the market, particularly in the next three to five years.
On the demand side, the UAE’s and, in particular Dubai’s economic growth, will generate investment demand (internally and externally) to accommodate the thousands of new expatriate arrivals which the government forecasts, in the gradual buildup to the World Expo 2020.
Dubai’s successful Expo 2020 hosting win will result in incredible mid to long-term economic benefits for Dubai. There are a number of important infrastructure projects that, some analysts estimate, will cost up to US$7 billion. This will naturally boost Dubai’s economy and ensure that its global real estate profile is once again an international talking point while real estate, transport, tourism, trade and retail will undoubtedly reap the benefits and flourish in the coming years.
Notwithstanding macroeconomic and political issues, and extraordinary supply/demand dynamics, property sales prices and rental prices should continue to rise but at more moderate levels (single digit) than we have seen in recent months.
On the supply side, our research implies that new property releases to the market should be consistently strong enough to absorb the increasing demand without putting undue pressure on leasing rates.
Source: John Stevens, Special to Freehold
Managing Director, Asteco