Growing up: Dubai's real estate evolution

According to analysts, price declines and compressed yields are a sign of a market that is evolving
Notably, the report stated that approximately 54,000 residential units – 78 percent of which are apartments – are expected to be handed over in 2018, including delayed projects from previous years.
By Bernd Debusmann Jr
Sat 20 Jan 2018 10:53 AM

Despite continued declines in rents and property prices, along with the growing spectre of oversupply, experts are noting that in many ways Dubai’s real estate market is maturing and has a bright future ahead as it looks towards Expo 2020 and beyond.

Last week, property consultants Cavendish Maxwell released a 2017 market review that found apartment, villa and townhouse prices had declined an average of two percent over the course of the year, with particularly sharp price changes for apartments in the Downtown Burj Khalifa area (-3.5 percent), The Greens (-3 percent) and Business Bay (-2.8 percent), as well as villas and townhouses in Jumeirah Islands (-3.2 percent), Victory Heights (-3.1 percent) as well as The Meadows and Arabian Ranches (-3 percent each).

Similarly, rents fell an average of four percent throughout 2017, which resulted in yield compression in many communities, with the steepest declines in The Greens (-5.8 percent), Al Furjan Villas (-5.6 percent), The Springs (-5.5 percent) and International City (-5.3 percent).

Notably, the report stated that approximately 54,000 residential units – 78 percent of which are apartments – are expected to be handed over in 2018, including delayed projects from previous years. Additionally, Cavendish Maxwell notes that a number of mergers and consolidations in several sectors that affects jobs may lead to more vacancies, which, combined with companies adjusting recruitment plans in the wake of the implementation of value-added tax (VAT) may lead to a “subdued outlook” for rents in 2018.

Now for the good news

While this may sound like a challenging time for owners and investors, some analysts believe that these figures are simply signs of the market continuing to develop in the face of new realities. “The market continues to mature. The fact that rents are coming down slightly quicker than prices is a reflection of the maturing market,” says Cavendish Maxwell’s Jonathan Brown. “It’s a less volatile market where investors are willing to accept lower yields.”

“There’s less risk being built in, and people have far more confidence over the longevity and sustainability and long-term outlook of Dubai,” he adds.

This long-term outlook has been bolstered by the support of Dubai’s government. Mahmoud Al Burai, CEO of the Dubai Real Estate Institute, says that the future of the Dubai real estate sector is based on two simple factors: confidence and trust.

“I see trust reflected in the numbers. In 2008, maybe people were saying that we would never again have strong off-plan sales, but last year this market was very attractive and people actually invested more in off-plan [properties],” he notes. “This shows how much trust they [investors] have in the system, the economy and the vision of the government.”

Brown adds that long-term vision is the key to success. “Real estate is not about short-term thinking; it’s about taking the long view, and this is the culture we want to promote.”

Price rises, he also notes, are minimal compared to 2007 and 2008, which shows how much more resilient the market has become. “I’m very optimistic about 2018 and 2019 and looking forward to Expo and beyond.”

Rise in affordability

A major benefit for residents, Al Burai says, is that Dubai’s real estate market is in the midst of a historic shift towards affordable housing. According to research from the Affordable Housing Institute, almost 82 percent of Dubai residential transactions in 2017 were for below AED2 million, and almost half [47 percent] below AED1 million. Of the transactions, 85 percent were for apartments, the obvious choice for buyers looking for an affordable housing option.

“Dubai is more affordable, and people can afford to live in the emirate. We have reverse migration from other emirates to Dubai,” Al Burai says. “A lot of people are [still] coming and investing in Dubai. The trust is there…the prices are a little down, but this is good for us, because we want to bring more people to the city. This is part of our economic growth.”

An added benefit, Al Burai notes, is that the declines in rents and prices, as well as the significant number of handovers expected in the near-future, are forcing investors and developers to focus on the quality of their offerings. “Now quality is making the difference. Developers are competing on quality and want to provide the best. This is good for us.”

This competition, Al Burai adds, also trickles down to residents. “They [developers] are giving flexible payments. They are giving long, extended payment plans and so on,” he adds. “We see great movement… the city is moving consistently in a direction towards being mature, resilient and sustainable.”

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