The investment case for Dubai realty is solid
One of the most important lessons I’ve learnt in life is not to let emotion influence the biggest decisions I have to make. This is particularly relevant for most people when it comes to investing in property at any level is one of the most important steps they’ll take.
So how do they make sure that something which may sound right, and look right, is the right choice, and not one they won’t regret somewhere down the road? The property landscape is ever changing, and keeping pace with those changes and recognising what brings about change is critical to get the best value for money, and the most lucrative returns.
The key to wise decision-making in real estate today is data. For investors and home buyers in a market like Dubai, data is the new oil … and it flows. The trick is in being able to analyse and understand it, something which does not always apply to those releasing data into the market in one form or another.
To the untrained eye, data can be intimidating. But in a world in which big data plays a growing role in helping businesses make their most important strategic decisions, more and more individuals are catching on.
By studying data, or enlisting the help of experts to help them, people are using data to make a wide range of decisions, from buying a car or a home, to choosing a career path to follow. So how can data help people make the best decisions in real estate, whether they’re an investor or an end user?
The question is appropriate in Dubai at a time when many observers have been viewing the market as one which is oversupplied, and looking no further. But if they were to study data that is readily available from the Dubai Land Department, and know what to look for, they would be able to recognise current conditions which can yield strong medium to long-term gains.
Almost on a daily basis in recent months people have been asking me if the Dubai market is over oversupplied. Of course, the answer is yes, because currently there is weaker demand accompanied by a higher supply, and that’s the reason why the prices are where they are.
But looking beyond that at the current Land Department data, we can see that residential property price levels are at their lowest for the last five years. Rather than being put off by the ‘oversupplied’ tag, investors and home buyers can find genuine encouragement to enter the market.
2012 price levels
The reality is that we’re now back down to 2012 price levels, and every indication is that they’re not going to stay there. Looking back over the last two or three decades, Dubai has established a proven track record in overcoming economic challenges brought on by instability in the Middle East and the global financial crisis.
In fact, Dubai is one of the fastest growing cities in the world, with a UAE university study last year outlining a population growth of 1,000 per cent in just 40 years. With forecasts that the current population of 2.88 million could more than double by 2027, it becomes easy to see why the current balance of supply over demand can be expected to shift significantly over the next 10 years.
Higher demand during this period means that today’s five-year low residential property prices can double, so now is a good time to invest again.
Land Department data shows a positive trend. There were a total of 54,720 transactions last year — the highest since 2013 when the figure was 63,000, compared with 61,280 in 2008 before the financial crisis. The introduction of VAT will certainly have an effect. Over the next few months I see a rush of activity from institutional investors attracted by the extra transparency that VAT will bring to real estate.
But while some observers are suggesting VAT will result in a big shift of attention from the commercial to the residential sector of the market, with residential property being zero rated, I believe that’s unlikely.
We’ll have to wait and see, but the vast majority of real estate investments is already in residential property, while most commercial property investors are end users. So I expect little to change.