It wasn’t long ago that many expats would only live in Dubai for two to four years, however as the city evolved so did the quality of living. Many expats now see the long-term viability of calling Dubai home: Matthew Bate, CEO Engel & Völkers Dubai
In early 2002, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President & Prime Minister of the UAE and Ruler of Dubai issued a decree allowing foreigners to buy property on freehold ownership. This visionary advancement created a fundamental change for the country and was the catalyst for Dubai’s modern property investment market.
Given that the decree was issued only some sixteen years ago, it can be said that the development of the Dubai property market is in its infancy. However, with the latest report issued by Dubai Land Department (DLD), Dubai’s real estate market recorded 39,802 real estate transactions worth AED 162 billion from the beginning of the year till the end of September 2018. This is a significant statistic and reflects the healthy size of our market.
Although 39,802 transactions in nine months is impressive we must not look at this in isolation, our business must review, predict and change through the broader cycles of the market. However, identifying such trends in Dubai’s market is somewhat challenging due to its age. As the simple definition of a trend is “a pattern of gradual change that occurs over a period of time, causing a statistically noticeable change,” it will take many more years for us to truly identify historical trends over varying cycles.
In saying this, as a global company Engel & Völkers Dubai has the ability to draw upon international experiences from mature markets in order to forecast growth areas and to highlight segments that provide opportunities.
With this international intel and our extensive local market knowledge, we believe we are approaching an era where the market is stabilising – one where there is an equal number of buyers and sellers. In 2018, Dubai has been described as a buyer’s market which has been strengthened by softening of both rental and sale prices. There is also a wider range of segments on offer, ranging from exclusive waterfront apartments through to more affordable living options in desirable communities. This is all contributing to a stabilisation of the market.
For instance, we see a shift in those Dubai residents previously known as the ‘long-term renters’ who are now deciding to buy their own homes rather than remaining in the rental pool. This is as a result of two main factors. The first being that the market now offers incredibly attractive opportunities in the mid to lower property segments. Such opportunities are located in established communities that provide both affordable and desirable living experiences.
The second factor relates to the desirability of Dubai as a long-term destination to call home. It wasn’t long ago that many expats would only live in Dubai for two to four years, however as the city evolved so did the quality of living. Many expats now see the long-term viability of calling Dubai home. This changes the equations when assessing the options to buy or rent, the result being many expats swinging to buy and invest in a home.
In addition, the continued increase in Dubai’s population year on year which is actively being supported by new government initiatives, are successfully increasing tourism, strengthening the rental sector and contributing positively to the overall UAE economy.
Although not all details of new government initiatives have been announced, the overall response has had an immediate positive effect on the market. Some of the key initiatives encouraging new investment are:
Dubai is a special place for individuals and families alike and it draws expats in with its fantastic lifestyle, safe environment, year round sunshine, attractive tax breaks and brilliant career opportunities that are more competitive than in many of our home countries. In reality, most expats end up staying much longer then they first anticipated, and soon adopted Dubai as their new home.
Per some of the changes and initiatives above launched this year by the government, many other tranches of measures were also announced to help expat citizens feel at home here in Dubai. This coupled with the softening of sale prices has led to many deciding to finally put deeper roots down into the country and become a first home buyer.Investors too have been and continue to be, attracted to the Dubai property market due to its very favourable return on investment (ROI), when compared to other major cities around the globe.
According to the Dubai statistics centre, 3,086,000 people are living in the Emirate as of October 2018 and this figure is set to hit five million by 2027.
As rental rates have become more competitive, properties are quickly absorbed, ensuring the landlords are adapting to more flexible offerings, and are generous in the number of acceptable rental cheques. In this stage of the cycle, renters look for quality, location, space and of course value for money - but not necessarily in that order!
Despite the many new developments, developers are playing their part in encouraging investment by creating quality living environments across all segments. Additionally, competitive payment plans for projects that are under construction make investments more attractive.
However, it is the trend of post-handover payment plans that really needs a special mention. We know that getting a mortgage can potentially be challenging and certainly raising the required 25% in order to qualify for a mortgage has caused many would be homeowners to remain long-term tenants. Developers have effectively taken over the mantle of the banks by providing attractive finance arrangements in the form of post-handover plans for ready properties. Typically, one pays 5% and can move in, the remaining 95% is currently repaid over a period of between three to seven years.
Developers have not stopped there. In addition, many developers are also helping buyers by sweetening the deal and taking care of the 4% transfer fee and the broker’s commission, thus freeing up more cash for the buyer. Some developers have reinstated the rent-to-own scheme which was pioneered several years ago. This again helps the buyer to raise the necessary 25% deposit by allowing the occupant to pay rent over a set period, typically three years. This rent goes on to become the deposit, assuming the buyer chooses to proceed with the purchase by then arranging a mortgage for the remaining 75% or simply walks away should they choose not to go ahead.
Other trends to entice the buyer (investor) come in the form of guaranteed ROI by offering a set percentage over a period of one to three years with no service charges to pay during this period.
All these offerings, coupled with better prices, has led to many new buyers entering the property market, which has clearly helped to absorb the available property stock whether on the primary or indeed secondary market.
Today, the outlook for the Dubai property market remains positive and stable. As residents remain in the country for an extended period of time, making Dubai their new home, investing in a home makes financial sense. Sellers are also reacting in a measured way and we anticipate that the market will become a win-win scenario for all concerned.
