End users prop­ping up Dubai’s realty mar­ket

The Pak Banker - - 6BUSINESS -

Evo­lu­tion of a ma­ture prop­erty mar­ket driven by grow­ing end-user seg­ment is prop­ping up Dubai's real es­tate mar­ket, which is on track to reg­is­ter Dh300 bil­lion trans­ac­tions in 2016, con­tra­dict­ing bleak fore­casts by some quar­ters.

"While re­ports from de­vel­op­ers and an­a­lysts in­di­cate Dubai's real es­tate mar­ket is down, ex­perts on the ground are con­firm­ing trans­ac­tions are up and the state of the mar­ket is in line with ex­pec­ta­tions," said prop­erty an­a­lysts Allsopp & Allsopp.

Trans­ac­tions in the first two months of 2016 are up 18 per cent on the same pe­riod last year, and mon­thon-month growth over the last 12 months has in­creased by 12 per cent.

Th­ese fig­ures sup­port data re­leased by Dubai Land Depart­ment show­ing more than Dh68 bil­lion of deals was struck in the first 53 days of 2016, while the depart­ment pre­dicts a to­tal Dh300 bil­lion of transac- tions over the course of the year.

"There are two dis­tinct prop­erty mar­kets in Dubai - the in­vest­ment mar­ket and the end-user mar­ket. While the in­vest­ment mar­ket is con­stantly an­a­lysed and dis­cussed in me­dia, and yes prices are down, it is a fact trans­ac­tions are up, es­pe­cially in the end-user mar­ket," said Allsopp & Allsopp's CEO, Lewis Allsopp.

"What we're see­ing here is the evo­lu­tion of a ma­ture prop­erty mar­ket, where peo­ple are buy­ing homes to live in af­ter rent­ing for a few years, then go­ing on to sell those homes and upgrade to larger prop­er­ties, cre­at­ing a ma­ture prop­erty cy­cle. It's a fact peo­ple are buy­ing homes," said Allsopp. Most an­a­lysts and prop­erty ex­perts at­tribute this re­silience of the prop­erty mar­ket against the fall outs of de­pressed oil price to Dubai's im­proved reg­u­la­tory en­vi­ron­ment, broader in­vestor pro­file, and in­creased ma­tu­rity.

Ac­cord­ing to a KPMG's re­view, Dubai's res­i­den­tial real es­tate mar­ket, which has seen price de­clines for the past year, is likely to wit­ness a re­bound in 2017. "While 2016 may be a chal­leng­ing year due to a num­ber of in­ter­nal and ex­ter­nal fac­tors, the mar­ket should see an up­turn next year."

While cer­tain ar­eas of Dubai have been more im­pacted than oth­ers in terms of de­clin­ing prices, the over­all mag­ni­tude of the de­cline has been tem­pered, said KPMG.

It said that this is a re­sult of "vastly im­proved reg­u­la­tions." Af­ford­able hous­ing ar­eas have in­curred lower de­clines and, in some cases, even main­tained value or rental yield, it pointed out. Ac­cord­ing to Allsopp, while oil prices have a macro ef­fect on mar­kets and play a ma­jor role in the dy­nam­ics of the re­gion, he ques­tions the ef­fect this has on the retail prop­erty mar­ket.

"It is im­por­tant when talk­ing pub­licly about the prop­erty mar­ket we seg­re­gate the mar­kets into in­vest­ment and off plan sec­tors ver­sus end users and ready prop­er­ties. Oil plays a big­ger fac­tor in the in­vest­ment mar­ket, as like oil, gold and many other in­vest­ments, prop­erty, es­pe­cially an off plan pur­chase, is gen­er­ally mo­ti­vated by turn­ing a profit. Based on the con­ver­sa­tions and spec­u­la­tion we are cur­rently see­ing in the mar­ket it's no sur­prise in­vestors are hold­ing back to see how mar­kets re­act."

Allsopp ar­gued that the end user mar­ket de­served more at­ten­tion, as it is a large part of the sec­tor and the econ­omy as a whole that is of­ten over­looked when analysing mar­ket con­di­tions.

"How does the oil price af­fect some­one who works in IT? How does it af­fect a teacher or some­one who works in me­dia? I be­lieve the oil price will have lit­tle or any ef­fect on such peo­ple who are pur­chas­ing prop­erty to live in - and the num­bers back this up. Th­ese are peo­ple who are buy­ing be­cause they're in the next phase of life and buy­ing a home for their fam­ily is the log­i­cal step to take. Maybe they need the ex­tra bed­room be­cause they're ex­pect­ing a child, or maybe they are down­grad­ing or mov­ing to an­other area to be closer to schools or work. None of th­ese rea­sons will de­ter the de­ci­sion to pur­chase a new home based on the oil price."

Allsopp points to reg­u­la­tions and mea­sures put in place by the Dubai govern­ment af­ter 2008 to pre­vent an­other bub­ble and ma­jor cor­rec­tion as rea­sons for the mar­ket dip in 2015.

Loan to value rates were de­creased to 65 per cent for pur­chases over Dh5 mil­lion, mean­ing buy­ers need to have over a third of the prop­erty's value in cash to buy a prop­erty. Off plan buy­ers are asked to pay an ad­di­tional reg­is­tra­tion fee of 4 per cent of the con­tract value at the time of book­ing and in­creased trans­fer fees of four per cent, up from two per cent pre­vi­ously when buy­ing from a de­vel­oper, were also en­acted around the same time, which has added to the cool­ing mea­sures.

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