The re-awakening of Dubai's real estate market

 If you ask a real estate agent, they’ll often tell you there is never a bad time to buy, but ask a bank and you’ll likely get a very different answer.

So when HSBC describes Dubai’s real estate comeback as ‘remarkable’, and they’re echoing similar sentiments expressed by Morgan Stanley, you begin to suspect that it’s more than mere hyperbole. '

In their respective recent statements, HSBC Holdings said a growing demand for larger homes during the pandemic will further boost Dubai’s property market, while analysts at Morgan Stanley expect the rally to last for “several years”.

“The reported sales rebound in Dubai year-to-date has been remarkable,” HSBC’s Stephen Bramley-Jackson and Alok Baid wrote. Despite supply concerns and negative population growth, “the globally synched post-pandemic migration to larger homes is also reigniting Dubai’s residential property market,” they said.

HSBC even raised its recommendation on Dubai’s top developer Emaar Properties to buy from hold, saying the stock offered more than 90 percent correlation to property prices.

The statements put a smile on the faces of some in real estate, such as Lynnette Abad Sacchetto, director of research and data at Property Finder, who took to social media to say: “Great to see other industry leaders echoing what we have been saying since last year, the proof is in the data and demand trends.”

And the change is more that sentiment, its evidenced in the figures, says Sacchetto, with Dubai’s real estate market witnessing the highest value of sales in April for over four years, with transactions totalling over AED10.97bn, according to the latest figures from Property Finder.

The number of sales increased month-on-month by 4.2 percent and 0.6 percent in terms of value and brings the year-to-date total to 16,577 transactions worth AED36.12bn ($9.83bn).

In April, 70 percent of the total transactions were up to AED2m, while 23 percent were between AED2m to AED5m, 4 percent were between AED5m to AED10m and 3 percent above AED10m.

“The dynamics in the residential real estate market in 2021 have been interesting thus far. In April alone, we have seen six villa transactions over AED50m, with one on the Palm recorded as the second highest villa transaction in 2021 worth AED105m,” says Sacchetto.

“When looking at the mortgage transaction data, we have seen that April, March and January of 2021 had the highest number of monthly transactions since March 2010.”

In April 2021, 60 percent of all transactions were for secondary/ready properties and 40 percent were for off-plan properties.The off-plan market transacted 1,934 properties worth a total of AED3.09bn ($841m) and the secondary market 2,898 properties worth AED 7.89bn ($2.15bn).

Compared to March, the number of off-plan transactions last month increased by 12.9 percent, the highest in 14 months and the secondary/ready property transactions decreased for the first time in 11 months by 0.92 percent.

“In the past few months, we have seen the highest amount of off-plan transactions month-on-month since February 2020 as the off-plan sector seems to be picking up again. Developers are attracting foreign investors with attractive pricing schemes and capitalising on the new visa regulations to attract foreign direct investment,” according to Sacchetto.

Emaar Properties, Dubai’s biggest developer, saw five-month sales surge by 250 percent year-on-year. The company put total property sales at AED10.5bn ($2.9bn) compared with AED3bn ($816.9m) a year ago.

“I am confident that the Dubai property market is once again a growth story for developers, in light of the UAE’s wise policies, with Emaar perfectly positioned to capitalise on this,” founder Mohamed Alabbar said in a statement.

Dubai Land Department (DLD) has witnessed the surge too, with a total of 25,455 real estate transactions worth AED92bn ($25bn) registered in the first four months of 2021, an increase of 51 percent in terms of volume and 72 percent in terms of value compared to the same period in 2020.

According to their real estate bulletin, 8,749 new investors entered the market during January to April, representing 65 percent of the total number of real estate investors registered in that period, and up 54 percent on the year-earlier period.

“Dubai’s real estate sector has maintained an accelerating growth since the beginning of 2021, which confirms the flexibility and attractiveness of the sector as well as the positive impact of the decisions and directives of the wise leadership, which, in turn contributed to enhancing investor and customer trust in the sector,” said DLD in a statement.

It added that the real estate sector in Dubai will “continue to attract more real estate investors, thanks to its strong infrastructure and attractive investment opportunities”.

Leading the charge in Dubai is the luxury sector, or so says one leading real estate agent, revealing that demand for high-end properties is currently outstripping supply in Dubai.

Dubai-based real estate agent Chris Boswell tells Arabian Business the first quarter of this year had been “quite possibly one of the best quarters since 2007-2008 and says he has closed over $56m in high-end sales since the start of the year – several in collaboration with co-listing agent Barnaby Crompton.

“For the first time in years, demand completely outweighs supply in Palm Jumeirah villas and plots/villas on Jumeirah Bay Island. Not only are villas on Palm Jumeirah selling fast but at record prices per square foot. It really has been a frenzy of late. My clients are tired of the high taxes and not feeling safe in their inner cities and many feel let down by the way their governments handled the Covid situation. What really is paramount for many is the safety and security that the UAE offers.”

The value of transactions of luxury Dubai residential property in the first quarter of 2021 rose by 25 percent compared to the year-earlier period, according to a research by Luxhabitat Sotheby’s.

Boswell reveals buyers are coming from Europe, the US and the Far East and is currently representing “several well-known ultra-high-net-worth individuals, sports personalities and leading names in the entertainment industry” as they look to make Dubai their primary residence.

And, according to consultancy firm Knight Frank, Dubai remains a place to seek out bargains for buyers with deep pockets.

A million dollars can buy 165 square metres (1,776 square feet) of space in Dubai, around five times more than in London or New York. The emirate has 42,356 homes valued at $1m, second only to the UK capital.

Boswell says: “The international high-net-worth community realised in late 2020 that Dubai was a secure place to reside during the Covid lockdowns across the world.

“I feel that many immediately recognised the value in Dubai and all the amazing things the city has to offer and that prime waterfront real estate was incredibly undervalued by comparison to other major cities around the world. In addition they felt safe and secure under an umbrella of great leadership through an incredibly challenging and difficult time.”

More data, should you need it, showed that the average quarterly residential property prices in Dubai rose for the first time in seven years in the first three months of 2021, according real estate consultants ValuStrat.

The ValuStrat Price Index (VPI) showed an average quarterly improvement of 0.8 percent, as the first three months of the year saw accelerated positive trends for the first time since 2014.

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Momentum in Dubai real estate to carry over into rest of 2021

 Dubai’s property sector will sustain a positive momentum in the second half of 2021 as visa reforms, successful Covid-19 vaccination plan and government measures to support the economy spur demand and manage oversupply, experts say.

Analysts and experts said the villa segment is performing better than apartments and positive sentiments will lift property prices up to five per cent during the July-December period this year.

“Depending on the Covid-19 pandemic situation, the second half of this year may continue the positive momentum that began in the third quarter of 2020. This is possibly due to the general positive market sentiment following measures put in place by the government to spur growth in housing demand as well as manage oversupply,” Haider Tuaima, head of real estate research at ValuStrat, told Khaleej Times.

He said the excellent countrywide vaccination programme has further strengthened market sentiment.

“With average home prices hovering at Dh900 per square foot and banks offering record-low interest rates coupled with a higher LTV of up to 85 per cent, getting on the property ladder became more affordable,” Tuima said.

Latest data by real estate portal Property Finder indicated that Dubai recorded 27,373 transactions worth Dh61.97 billion during the first half of 2021. This is compared to 35,041 sales transactions worth Dh71.87 billion registered in 2020, reflecting the best real estate performance in terms of sales transactions in the past eight years.

Positive sentiment

“We are seeing the market already bouncing back. The market, across the board, has seen an uptrend. Citywide prices have increased by 1.3 per cent in March this year. This is the first year on year price increase we have since early 2015. Since the market bottomed out in November 2020, prices have recovered up to seven per cent until now,” Ayman Youssef, vice-president at Coldwell Banker UAE, told Khaleej Times.

He said sentiment is better in Dubai as the world noticed how efficiently the emirate handled the Covid-19 situation. This has made many luxury buyers consider Dubai as a place to put their investment in.

“We have seen a lot of regional and international buyers relocating to Dubai into the luxury segment because of the attractive prices and strong control of the pandemic. We are seeing a historic time for the Dubai luxury segment. Properties that are Dh10 million and above have seen a historic high market share of 2.5 per cent,” Youssef said.

“Low interest rates have converted many tenants into buyers. The sentiment among investors is improving since the market has already bottomed out and now seeing real demand. Prices are below replacement cost in many areas which is a good entry point for investors.”

He said occupancy is still low in B-grade apartments that don’t provide a lot of amenities and services.

“This is also because a lot of people prefer villas to apartments due to their new work-from-home routines and the need for bigger space, green areas and amenities. We’ve also seen a rise in demand in beachfront properties,” he said.

“The first half of 2021 saw strong performance as the market was in rebound. However, the second half of the year is expected to see moderate growth and we expect a price increase of three per cent to five per cent citywide from H1 to July-December 2021,” he added.

Steady rise

Prathyusha Gurrapu, head of research and advisory at Core, said due to various demand drivers, transaction activity has seen steady increase, particularly in the secondary market with a 64 per cent increase in transaction activity over the first quarter this year compared to the same quarter of 2020.

“On the other hand, off-plan market activity continues to face headwinds, contracting by 29 per cent over the same period. That said, we foresee steady absorption for near completion off-plan projects from select major developers over the remainder of 2021 as demand and sentiment improves with developers focusing on existing under-construction projects and deliveries,” Gurrapu told Khaleej Times.

Growth drivers

Highlighting the top five growth drivers for property in 2021, she said UAE’s high vaccination rates, safety and business continuity for businesses and residents; relatively easy access to finance — lower LTV values and lower interest rates making it easier to climb the property ladder; visa and social reforms; a raft of fiscal incentives and government measures to support the economy; and Expo 2020-led positive economic sentiment will further strengthen market sentiments.

“Despite high rates of vaccinations, due to the very nature of the pandemic and its ever-changing impact on global tourism and mobilisation, we are yet to say with certainty that we are in a sustained recovery phase. That said, with strong fundamentals, business resilience and investment interest, most market stakeholders hold a positive market sentiment and remain cautiously optimistic for a steady 2021 on the back of efficient government measures,” she added.

Ratings agency S&P Global recently shared positive remarks on Dubai’s real estate and forecast more than 30 per cent revenue growth in 2021 on supportive market trends for real estate and a gradual recovery in other business segments.

“We expect Dubai’s GDP to rebound about 3.5 per cent in 2021, followed by growth of 2.5 per cent in 2022,” S&P analysts had said.

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Lower interest rates, affordable property prices boosts demand for ownership

 

Lower interest rates and affordable property prices have led to a dynamic shift from rentals towards ownership in the UAE, said Gaurav Gambhir, managing director, Lion Mortgage Consultants.

“Mortgage books of banks have seen an exponential growth after the UAE Central Bank relaxed the norms for first time home buyers by reducing the down payment requirements. We foresee this growth trend to continue primarily due to low interest rates for the near future, influence of peers and family, in addition to the financial benefits of buying greatly outweighing renting,” said Gambhir.

While the majority of banks are focused on the most sought-after salaried profiles clients, there is a slow but noticeable shift is happening with certain lenders now tapping into the self-employed sector.

“This is an ideal segment as businessmen went through a real-life stress test scenario due to the economic repercussions stemming from the Covid-19 pandemic and the measures implemented, mainly the lockdown and despite of it all they continued to service their personal and business obligations. More than any risk assessment criteria, this reflects the resilience and the ability of the business sector to perform even during adverse times,” added Gaurav.

Lion Mortgage Consultants expect the home residential mortgage market growth to continue at a steady pace. Banks find that real estate lending carries a low risk as compared to personal loans, credit cards and SME lending and, also has better margins than top rated corporate lending.

People living in rented homes is considerably higher in UAE than those living in their own properties. “Our estimate is that around 20 per cent of the UAE households live in their own homes, whereas the global average is 40 per cent, as more and more people look at making UAE as their home, we see a fair opportunity for mortgage buyers in the mid to long-term,” said Gambhir.

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