After having a stellar run in the last two years, one topic that has people in question marks is talk of Dubai’s property market losing steam. What do the experts say and are past occurrences indicative of future trends? To put it simply, Dubai’s real estate market is far from losing steam.
Before anything else, a brief ‘recent history’ lesson is in order.
Let the Facts do the Talking
Today, Dubai boasts a population of over 2.2 million, which was reported to be under a million around the brink of 2000 – economic growth is one factor that has led to this increase.
The UAE today has a population of over 9.3 million inhabitants, and interestingly, 80% among these happen to be expatriates, which are also responsible for driving the property market. However, things weren’t always this peachy – the 2009 credit contagion could not be confined to the US alone and the UAE economy got hit too. Unfortunately, real estate was at the heart of this casualty, experiencing a 60% market crash.
The root cause of this crises dates back to 2006 when Dubai welcomed foreign investments from many buyers including Asians which accounted for 40% and Europeans, 20%. Unfortunately, global liquidity started to dry up after 2008, as did foreign investments. The property market took a good three years to recover from the aftermath.
Fresh from recovery, the market was back in black and prices started to rise, especially after Dubai won hosting rights to World Expo 2020. Between January 2012 and the last quarter of 2014:
- Prices rose by an average 21%
- In 2013 and 2014, prices rose by as much as 30%
- Locals accounted for 21% property purchases, while Indian and British expats were quick to cash in as well
It should be known that Dubai properties are at least ten times cheaper than Monaco, which happens to be ranked the world’s most expensive residential market.
Real estate prices saw a rise in 2014, even though the number of transactions dropped by about 30%. There has been a slowdown in the property price growth rate after 2013 and 2014 saw very strong rises. Prices, however, have started correcting – a 4 BHK piece of property in Palm Jumeirah that was up for AED 14 million, was sold for AED 10.5 million. One reason for this dip is due to less capital flows which has some economies grinding gears in order to say buoyant.
For example, the 50% year-over-year depreciation of the Russian ruble has adversely affected Russian investment. Since the dirham is in a way, artificially pegged to the US dollar, Russian investors are not as readily able to buy Dubai properties as they used to be.
Despite initial skepticism, there is one thing just about everyone who has invested in Dubai can agree on: the chance of another 2008-like crises is slim to none, especially given the regulatory curbs aimed at reeling in speculative investors. So if you’re worried about another price crash, there is little reason to be. After a few consolidations, Dubai’s property market is set to reach new heights.
Why Investing Today Makes Sense
There are certain factors that need to be understood in order to clearly see through that Dubai is on the rise again. First off, it’s reliance on high oil prices continue to diminish as there’s more diversification taking place. The market has several segments which are yet to be penetrated and there are indeed strong opportunities to be found, specifically, rising demand for education, healthcare, modern retail and transportation growth.
Dubai’s Expo 2020 will most likely work as a proverbial magic pill to boost the real estate sector even more. The event which will be held between October 20, 2020 and April 2021 aims to attract over 25 million visitors, not to mention the AED 25 billion invested into infrastructure-related works, which will create 277,000 jobs.
Even though property prices in late 2013 and part of 2014 were largely driven by Dubai’s bid to win the Expo 2020, favorable economics of owning property in Dubai also take some of the credit – prices will remain the same even though the expat population continues to grow. The UAE is expected to enjoy a 3% GDP growth and Dubai’s population can rise by more than 50%, consequently not due to the 2020 Expo, it should be noted. Hence, there is a strong demand for property growth.
How it all plays out in the long run can be best described as a bit of a mirage. Still, many statistics clearly indicate that you should buy property in Dubai at current prices, which are fluctuating between AED 700 and 1,200 per square feet.
Just to give you an example, a 789-sq foot apartment in International City costs just under AED 560,200, compared to its 2008 price of AED 828,450. That’s a 30% drop. Similarly, the price of a single-bedroom apartment around Burj-ul-Khalifa has seen a price correction as well – AED 2,325 per sq. ft. in 2014 compared to its AED 2,700 per sq. ft. price in 2008.
Interestingly, the price decline is outgunning rent declines, jacking yields up by 7% for apartments. The January 2015 Reidin rent index indicates an 11.8 year over year increase in the UAE; you’d have little reason not to make purchases even on a mortgage and profit owing to rental yields.
Here’s more good news: prime properties in Dubai still offer significantly better value per square meters compared to Hong Kong, London or Singapore.
Apart from enjoying the lure of Dubai’s tax-free policy, you are also best off investing in dollar assets, as the dirham will continue to be pegged to the US dollar. Dubai’s property market is ambitious as ever and the credibility of the real estate sector is only going to rise in the coming years.
So, anybody up for a slice of property in Arabian Ranches or Palm Jumeirah? Buying property in Dubai can be an easy and breezy affair, provided you know the right realtors. Get in touch with ezEstate today to have your all your property matters seamlessly handled.