While reports from developers and analysts indicate Dubai’s real estate market is down, experts on the ground are confirming transactions are up and the state of the market is in line with expectations.
These figures support data released by Dubai Land Department last week showing more than Dh68 billion of deals were struck in the first 53 days of 2016, while the department predicts a total Dh300 billion ($81.6 billion) of transactions over the course of the year.
Allsopp & Allsopp’s CEO, Lewis Allsopp, said: “There are two distinct property markets in Dubai – the investment market and the end-user market. While the investment market is constantly analysed and discussed in media, and yes prices are down, it’s fact transactions are up, especially in the end-user market.
“What we’re seeing here is the evolution of a mature property market, where people are buying homes to live in after renting for a few years, then going on to sell those homes and upgrade to larger properties, creating a mature property cycle. It’s a fact people are buying homes.”
The Relevance of Oil Prices
Mr. Allsopp says, while oil prices have a macro effect on markets and play a major role in the dynamics of the region, he questions the effect this has on the retail property market.
“It’s important when talking publicly about the property market we segregate the markets into investment and off plan sectors versus end users and ready properties. Oil plays a bigger factor in the investment market, as like oil, gold and many other investments, property, especially an off-plan purchase, is generally motivated by turning a profit. Based on the conversations and speculation we’re currently seeing in the market it’s no surprise investors are holding back to see how markets react.”
Allsopp claims the end user market deserves more attention, as it’s a large part of the sector and the economy as a whole that is often overlooked when analysing market conditions.
“How does the oil price affect someone who works in IT? How does it affect a teacher or someone who works in media? I believe the oil price will have little or any effect on such people who are purchasing property to live in – and the numbers back this up. These are people who are buying because they’re in the next phase of life and buying a home for their family is the logical step to take. Maybe they need the extra bedroom because they’re expecting a child, or maybe they are downgrading or moving to another area to be closer to schools or work. None of these reasons will deter the decision to purchase a new home based on the oil price.”
Why has the market dipped in 2015?
Mr. Allsopp points to regulations and measures put in place by the Dubai government after 2008 to prevent another bubble and major correction.
Loan to value rates was decreased to 65 percent for purchases over Dh5 million, meaning buyers need to have over a third of the property’s value in cash to buy a property. Off plan buyers are asked to pay an additional registration fee of 4 percent of the contract value at the time of booking and increased transfer fees of 4 percent, up from 2 percent previously when buying from a developer, were also enacted around the same time, which has added to the cooling measures.
“These measures were put in place for a reason and they are doing the job they’re supposed to do, which is to stabilise the market and prevent another bubble. What we’re seeing now with the decrease in sale prices is the result of a regulated market acting as it should. The fact we’re seeing an increase in sale transactions is further proof of this.”
Are prices going to come down for tenants?
In theory, rental prices should fall in parallel with a dip in the purchase price. However, prices over the last 18 months show there has been little effect on rental prices.
“One of the major factors to take into consideration is that while many tenants might start looking for new rental properties, once they realise the hidden costs of moving to outweigh any potential savings, they’re not moving. As a result, the majority of rentals are being renewed and this keeps prices stable.
Mr. Allsopp adds that with vacant properties, wherein other markets you would expect landlords need to fill them urgently, most landlords in Dubai are not constrained by financial obligations and would rather see the property sit empty than let them fall below their own perceived market value.
“As far as I’m aware, this is a situation wholly unique to Dubai,” he says.
Allsopp & Allsopp CEO,
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