Luxury is traditionally well-appreciated in Dubai, but the jumping prices in the real estate sector and the implemented last year new mortgage rules have led to a steep decline in prime property sales. For investors and end-users, affordable properties have become more preferred in Dubai.
The property market growth advanced between 2011 and 2013, but since the announcement about Dubai’s hosting the World Expo in 2020 last year, the prices in both sales and rents sectors saw rapid increase. Despite the constantly released new supply of residential and commercial properties, prices soared as high as 30 percent in 2013. International consultants estimate that Dubai’s housing market was the fastest growing in the world, with an average increase of 24 percent. This rapid growth forced many tenants to relocate in less popular areas of the city, in smaller apartments, or to leave Dubai altogether. As a result, more affordable and mainstream properties have gained popularity and soared in value.
According to data from Dubai Land Department, on average, apartment prices jumped 27.2 percent on annual basis to reach AED 1,390 per square feet in August 2014. Moreover, smaller apartments are performing better than larger and more expensive homes, due to their accessibility. Investors now get better yields in secondary areas such as Business Bay than in prime location as the Downtown Dubai, despite the fact that both are in close proximity to each other. One can still find a one bedroom apartment in Business Bay for about 1 million Dirhams, while in the Downtown the cheapest similar unit is prices between 1.7 and 2.5 million.
Prices for studios, which are 700 square feet or smaller, have risen 36.2 percent to AED 1,112 over the past year, concludes local consultancy ValuStrat. For example a studio of approximately 600 sq.ft. in 29 Boulevard now sales for around 1.4 million, while in International city the price is 380,000 Dhs. The rents however, do not follow similar ratio. If you can rent a studio in a prime location on Emaar boulevard for 80,000 Dhs, similar sized one in International City is priced at 35,000 Dhs.
One of the factors influencing the positive performance of the mid-range segment is the implementation of new mortgage rules by the UAE Central Bank. Foreign buyers of properties over AED 5 million need to pay 35 percent of the total price as a down payment, while the deposit required for more affordable homes is 25 percent. In addition, official statistics reveal a slight annual decline in transaction figures (4.8%), but this fact can be explained with the increased transaction fees and the new UAE mortgage cap. In terms of transaction fees, altogether they can reach up to nearly 10% of the cost of the property.
Investors looking at off plan properties, for which they don’t need to pay 4% transfer fees, also are disappointed as the the prices for such are now higher than for similar ready-to-move-in residential units. For example, a two bedroom apartment in Emaar’s The Address Residence Fountain Views now sales for nearly 4 million, while a ready to move in 2 bedroom of a similar size in The Old Town is prices at around 3 million.
Overall, Dubai remains preferred destination for GCC investors, with Saudi Arabian buyers spending AED 3.4 billion in Q1, followed by Qataris who contributed to the economy with AED 1.5 billion, Kuwaitis – AED 839 million, Omanis – AED 482 million and Bahrainis – AED 247 million. But Indian investors have spend the most – nearly AED 10.5 billion in the first quarter of the year. The foot fall at Cityscape 2014 was also very impressive and some developers have sold units in their new projects on the spot.
Industry experts predict that the moderation of housing prices will continue through the end of the year with a possible slight growth in the fourth quarter. At present, the best strategy for investors is to hunt for distressed properties for sale, which are already rented out.
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I can see why people are looking for more affordable property – there was a huge Dubai boom that drove up prices… now it’s settled down the prices haven’t changed to be in line with that. Similar things seem to happening in a lot of international markets – GVA Worldwide have done some great research piece on the internation property markets – definitely worth a read.