Every month we hear about record breaking transaction volumes for Dubai real estate, a lack of supply and the golden question ‘when will the market turn?’.
Couple this with rising interest rates, buyers may be starting to consider other options. In March, we witnessed a phenomenal month for residential transactions in the real estate sector with close to 8,000 (second highest month on record). However, in April, we saw a 17% decline from March, and in May, a 13% decline vs April as per Reidin data. Has the market turned? Or is it simply the summer slowdown?
There’s no denying 2022 has thus far been full of global economic uncertainty, having a direct influence on multiple aspects of the real estate market.
Interest rates
We’ve now seen three rate increases this year, with the FED increasing interest rates by 75 basis points in June. According to Holo.ae, the digital mortgage platform, the most popular fixed rate mortgage now stands at 3.75% with fixed rate mortgages becoming more scarce as banks tread with caution.
As interest rates increase, inevitably home buyers will stop to consider their options as all debt they’ve taken on becomes more expensive. What now makes only a few hundred dirham difference may start to make a thousand dirham difference. It’s hard to predict the future but we’re entering a very uncertain period over the next 24 months whilst governments work to get inflation under control.
Inflation
Inflation is evident across our everyday lives and we are increasingly feeling the effects. From our bills, to car payments, through to grocery shopping. Albeit the government’s move to freeze the price for over 11,000 basic goods in the country is a sure move to protect residents from feeling the effects as much as other countries.
However, inflation is present, so what’s the alternative to buying? Leaving cash in the bank and witnessing your purchasing power decrease? Interest rates may feel like a tough pill to swallow today, but if you’re looking at Dubai as a long-term home, as an investment over many years, then buying may still remain the better option for capital appreciation.
Growing population
None of us are shy of the Dubai 2040 vision to double the population, and the direct impact this has on the housing market. With 700,000 homes in the UAE today, we need to add 25-30,000 units to the market every single year to accommodate the growing population. With over 37,000 homes completed this year and circa 35,000 expected to be delivered this year, we are still showing some unit supply constraints which may continue to drive a healthy housing market.
Other investment classes
For investors, typically they are diversified across numerous asset classes such as crypto, stocks and global index funds (which is down by over 12% YTD). As an investor, diversification is crucial to a sustainable portfolio. Many investors haven’t yet jumped into the property market, but as the markets continue to fall, investors are now seriously considering buying homes in Dubai.
Supply chain crisis
The ongoing supply chain crisis puts heavy constraints on the real estate market. With long delays on raw materials coupled with staff shortages on freights and at ports, developers are already facing project delays and will need to be careful in how they manage their projects moving forward.
With around 45% of residential sales transactions coming from off-plan, there’s a strong chance we could see these transaction numbers slow down throughout the year. To those looking to buy now, ensure you do your due diligence. Going with a more established developer with a strong track record should ensure you are protected from heavy handover delays and other ill-effects from the crisis.
Construction costs
With construction and shipping costs up by more than 25%, construction companies are facing more constraints when it comes to their builds. These increasing costs are already being pushed through to the end user with the average price for off-plan units rising month on month throughout 2022. Developers will need to plan ahead, acquire more materials upfront and factor in these rising costs when deciding on price points for their units.
With many uncertain macroeconomic factors coming into play on how the real estate market performs, there’s one thing for sure. Dubai isn’t the city it was in 2008 or 2014. It’s matured, it’s evolved and it will continue to do so year after year; making Dubai a place of intrigue and interest for not just residents, but for home buyers from all over the world.
Sarah Hewerdine, head of marketing at houza
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