Quality, affordability, and off-plan have made the most impact on Dubai’s property sector
Dubai collected around Dh285 billion from 69,000 real estate deals last year, according to the Dubai Land Department. Of these, the sale of land, buildings and individual units amounted to Dh114 billion from 49,000 transactions, while mortgages in the same three categories reached Dh138.5 billion from 15,700 transactions.
The DLD says this reaffirms investor trust in the emirate’s property market. “Last year, the off-plan market was attractive. This shows trust in the government and the economy,” said Mahmoud Al Burai, CEO of the DLD’s Dubai Real Estate Institute, at the recent launch of the Cavendish Maxwell and Property Monitor 2017 review, which was a collaboration with the DLD. “We see a lot of directions towards affordability. We have reverse migration from other emirates to Dubai. Prices being down is good for us to bring more people to the city.”
Residential stock in Dubai was estimated to be around 491,000 units last year, according to a JLL research, with apartments accounting for more than 80 percent and reaching approximately 403,000 units. Villas reached around 86,000 units. Key projects which were completed include Duja Tower in Trade Centre (679 units), and The Polo Residence in Meydan (598 units).
With more projects being launched and completed on schedule, the year saw tenants gaining bargaining power. “There has also been a steady rise in project completions, which has put the bargaining power firmly in the hands of tenants,” according to a report by Asteco.
Here are the key trends that shaped the property market in 2017.
Bring on affordability
With a focus on community-based spaces and happiness of residents, affordability became a key theme to enable end users to enter the market. In Cavendish Maxwell’s report, Maysa Sabah Shocair, managing director in the Middle East and North Africa of the Affordable Housing Institute, says, “The overall market data clearly indicates a shift towards more affordable housing. Almost 82 percent of the residential transactions last year were below Dh2 million, with almost half or about 47 percent below Dh1 million. Furthermore, 85 percent of all transacted units were apartments, a clear choice for budget-sensitive buyers.”
Asteco notes the significant number of new project launches last year that target the mid-income market, with a marked shift to smaller units offering lower price points. There also more incentives such as guaranteed returns, reduced commission fees, low down payments and post-completion payment plans. “This resulted in a rise in end users and first-time buyers entering the market,” Asteco said in a report.
Developers that focus on this segment of the market attest that their stock is being picked up by end users and are actively encouraging this practice. Atif Rehman, director, and partner at Danube Properties says, “As a policy, we don’t allow more than three properties for a single owner. We have sold over 3,200 properties and only 70 have been resold. So 98 percent went to the end users.”
The price-conscious investor is influencing all sectors, causing varied supply to enter the market. According to Cavendish Maxwell’s report, “Q1 2017 marked the entry of lower-priced villa/townhouse inventory into the market, taking the average trading price for villas and townhouses in Dubai from Dh2.7 million at the end of 2016, to Dh2.2 million in the first quarter of 2017. This reflected the launch of new villas and townhouses priced as low as Dh1.3 million in areas such as Reem and Dubailand. As of Q4 2017, this average trading price for villas and townhouses settled close to the Dh2.3 million mark.”
The off-plan market has emerged strongly despite toughened regulatory oversight to prevent speculation. Property consultancy JLL’s year in review for Dubai says, “The majority of sales in the residential sector have been concentrated in the off-plan sector, where developers have been offering particularly attractive prices and payment plans. A total of 25,600 off-plan properties were purchased in Dubai in 2017, with 2017 set to record the highest level of off-plan sales in Dubai since 2008.”
The strong growth of off-plan was seen across segments, with prime beachfront properties coming up across Dubai. “The total off-plan market for prime residential communities was worth Dh16 billion,” according to property brokerage Luxhabitat. “Downtown Dubai sold the most in terms of off-plan [Dh5.8 billion], followed by the new communities of Dubai Creek Harbour [Dh2.9 billion] and Mohammad Bin Rashid City, inclusive of Dubai Hills [Dh2.7 billion].”
Brigitte Tenbergen, associate director at Luxhabitat, says there has been high demand for off-plan beachfront property. “Most of these developments will be handed over in 2018 or mid-2019 and all have show apartments,” says Tenbergen.
Lower, easier rents
This is good news for residents, even though it means lesser yields for the investor. “After seeing a quick recovery over 2011-14, rents in Dubai declined again from 2015-17,” according to the Core-Savills report. “The residential market continues to see further downward adjustments in rents, resulting in yield compression across a number of areas.”
Cavendish Maxwell has similar findings: “During 2017, residential property rents declined at a more pronounced rate than sales prices. Areas including The Greens, International City, Al Furjan Villas and The Springs witnessed the steepest annual decline.
“Landlords continue to offer incentives, including payment through multiple cheques and free rent on the first month to attract tenants.”
Paying by multiple cheques instead one is now the dominant method of payment. According to Property Monitor’s database of rental contracts, the majority of the rental agreements for residential properties last year were in four cheques, unlike 2016 where one cheque agreements were most prevalent in both villas and apartments. It says that one-cheque payments were only seen in 22 percent of agreed rental contracts, half of that in 2016, and four-cheque payments made up 58 percent of the total rental agreements, increasing by almost 61 percent from 2016.
Luxhabitat says this is being witnessed in the prime segment too. “Rental prices for prime properties have followed similar trends of the general market,” says Ryan Kasper, rentals director of Luxhabitat. “Most luxury apartment and villa prices have remained relatively stable, although we have witnessed a longer marketing period between tenants, and more flexibility in payment terms among landlords.”
Grade A rules
Quality remained a theme across the board. Even in sectors that have seen declining activity, quality projects have been quickly snapped up. Underlining its importance in the office sector, Core-Savills says, “Dubai’s office market encompasses the key characteristics of an attractive destination for global commercial investment. Occupancy levels of grade A office stock in core locations are notably high due to strong demand from blue-chip occupiers choosing to locate their regional headquarters in Dubai and the current limitation in stock. Additionally, lease acquisition costs remain low alongside high but steady yields.”
Grade A office space under single ownership, which constitutes a fraction of the overall office space, fared better when compared to strata title properties, according to Asteco, adding that development in areas around the Dubai International Financial Centre and World Trade Centre is particularly active due to good levels of demand.
Cavendish Maxwell reports similar interest in single-owned office stock compared to strata buildings. For investors, these promise higher yields, even as big-name tenants such as Facebook, Amazon, and Entertainer take up entire floors in fitted-out office buildings.
While buyers are price-conscious, they are also usually sticklers for quality. As Danube’s Rehman explains, “There is a difference between affordable and cheap. Affordability is about value engineering, controlling economies of scale and smart living.”
Source: “Gulf News”