“Cost drop in the Dubai real estate market is modest now as compared to 2009 but it still remains an emerging market”
Residential properties in Dubai have witnessed an imminent price drop for seven consecutive housing schemes. During the second quarter of 2016, home sales fell three times more than it was in 2015. In the last 18 months, real estate market lost 6 to 15 per cent but it varies from a location to another.
David Godchaux, a local agent says Dubai has seen much worse! The financial crisis in 2009 came with a hypothetical boom during which property prices slumber more than 40 per cent. The situation was such that a government-owned investment Dubai World announced a delay in clearing the debt of almost $59 billion which is the largest autonomous default since Argentina in 2001.
In-debt property owners who invested in multiple real estate units with slim deposits fled the country due to the fear of jail for dismissed mortgage repayments back then. As compared to the situation back in 2009, the recent price falls are gentle and not as devastating. It actually demonstrates an economy that’s more diversified and rather an industry that actually learned its lesson.
A 25 per cent minimum deposit following an increase for second homes that are already expensive has been introduced. Banking sector is properly regulated and not all buyers left at the same time. Few are entrepreneurs whereas others can easily afford so the market is indeed “diversified”.
Dubai might’ve dealt with this price fall in a better way as compared to the last and perhaps one of the top five global cities for individuals with a net worth that can be as higher as $30 million; this is only for the super-rich though. Since it’s an emerging market from 2014 onwards, external factors are much more influential driven by the global capital investment.
Residential properties in Dubai particularly are impacted by number of global and regional fundamentals. Another important factor resulting in the current price drop is the imminent sell-off by Russian investors fuelled by the sanctions imposed in 2014 by the European Union and the US. The strengthening of dollar to which UAE dirham is directly pegged is another aspect. Property seemed expensive for international buyers but for owners, it’s another time to cut the losses.
Sympathy factor of Dubai towards the countries beyond borders are linked to the work force on which the very infrastructure and growth rely on. A report from UN, much to our surprise, revealed that less than 12 per cent of the population living in the city holds UAE nationality, rest are expats. Majority of non-citizens are low-paid employees and a group government would put to use in case the cost fluctuation raised the risk, same as that in 2009.
More than half the inhabitants are expats of which many are even willing to leave Dubai due to higher cost of living. However, the recent financial drift may introduce new and improved proposals for residential properties and perhaps a mandatory quota of low-cost homes.
With a deposit equals to 25 per cent of the total cost with actual purchase price of seven per cent, potential buyers need raising value of the new home by one-third almost. Even the cheapest of them all are under proposed quota system costing more or less $135,000 that’s 500,000 Dirhams.
For rich, international buyers dominating Dubai’s market, affordability isn’t a problem as average cost is approximately 60 per cent less as compared to that of homes in the New York City, London, Hong Kong and other real estate giants.
Some of the cool prospects of the change that is, cost drop in residential real estate market can be seen in Arabian Ranches, to the south of Downtown Dubai. For more affluent buyers, Emirates Hills are a perfect haven whereas Palm Jumeirah is another hotspot to land a new home right at the foot of Dubai’s coastal line.
All buyers have to pay four per cent transfer fee and international purchases are restricted to freehold investments whereas an average home may cost $2.2 million.
The purge in residential cost across Dubai is indeed considered healthy allowing the market to resurface and present some lucrative opportunities for all.
Special thanks to Banke’s Business Bay apartments sales and rental department for sharing such useful insights for this article.