The softening of the Dubai real estate market has prompted buyers and investors to rethink investing strategies. Many are of the opinion that there needs to be a supply control, others feel it’s important to understand the needs of a younger population and a newer workforce and look at short-term rentals or even co-living and working spaces. Investors are also waiting for the market to completely bottom out. So what should the outlook be for 2020?
According to market experts, prices today are approaching the levels last seen in 2009-2010, which provides good opportunities for investors to enter the market. Craig Plumb, head of Mena research at JLL says, "With the market now close to the bottom of its cycle, there is a relatively limited likelihood of prices falling further in the short term. We expect prices and rentals to remain relatively stable over the remainder of 2019. The extent to which the market will recover in 2020 will be dependent upon the success of recently announced initiatives to boost demand and limit supply."
JLL’s latest report shows that average prices and rentals declined by less than 2 per cent in Q3, compared to the previous quarter. There has also been a marginal increase in the level of sales activity over the first half of 2019, compared to the same period in 2018, another indicator of a future improvement in prices.
Initiatives such as long-term visas or “Golden Card” residency permits, relaxed regulations in foreign ownership of business and the Central Bank’s removal of 20 per cent cap on real estate lending as a percentage of total deposits, are expected to stimulate demand as well as to soften the impact of the downturn, says Sayndipta Ghopsh, director of residential at JLL. The anticipated increase in economic activity due to Expo 2020 Dubai will also provide a boost to investor sentiment.
However, until recently there have been little effort to restrict future supply. The recent announcement of the new Higher committee for Real Estate Planning headed by Shaikh Maktoum Bin Mohammad Bin Rashid Al Maktoum, Deputy Ruler of Dubai, recognises the need to control future supply levels. The committee plans to introduce, among other things, measures to achieve a better demand-supply balance.
High levels of supply
According to Plumb, the high levels of recent supply are being felt in both the residential and commercial sectors. The average level of residential completions in Dubai over the past three years has been around 20,000 dwellings per annum, while as many as 60,000 dwellings are scheduled for completion in 2019 alone. A similar increase in new supply is also being witnessed in the retail sector where completions this year could exceed 600,000 square metres compared to an average of 233,000 sq m per annum, over the past three years. While not all the proposed projects will complete on schedule this year, there is no doubt that 2019 will see a significant spike in completions across both the residential and commercial sectors.
"The extent to which the new committee will be able to achieve a better balance between supply and demand remains to be seen, particularly as the committee will include representatives of major developers. The recognition that something needs to be done to better control future supply levels is however a positive step. The ‘build it and they will come’ model has served Dubai well in the past but now is the time to be reviewing this approach and create a more balanced market. Achieving this objective will inevitably require more controls on the level of supply," said Plum.
Almost about 70 per cent of expat residents in Dubai still rent. According to Haider Tuaima, head of real estate research at Valustrat, bachelors, couples and small families in Dubai can now easily find studio apartments renting as low as Dh20,000 per annum. These apartments are in International City, Al Muhaisnah, Academic City and Dubai Production City. "Larger families with limited budgets have options to choose from the 1,572 recently completed villas located in Nad Al Sheba and developed by master developer Nakheel. Asking annual rents for these villas range from Dh118,750 for a four-bedroom, 3,800-sq-ft house, to Dh128,250 for a five-bedroom, 4,100-sq-ft house."
Schemes such as post-handover payment terms, DLD registration fee waivers, free service charge offers will eventually attract more buyers to own homes instead of renting, notes Plum. Also, with banks offering up to 75 per cent mortgage with fixed interest periods and lower monthly income criteria, for an end user this is the ideal time to buy and move in to their own apartment.
In Dubai, there are plenty of attractive options available today in the affordable market segment such as Dubailand, JLT, JVC, IMPZ, Discovery Gardens, etc. Hence, instead of paying over 30 per cent of the monthly income on rent, it makes sense to invest in a property and move in. With residential prices expected to stabilize and bottom out in 2020, for a homebuyer this would be the ideal time to buy their dream home.