What the optimists and cynics feel about Dubai realty
MARKET INSIGHT
Just as in most years, this year too can be divided into two camps: those who were optimistic (albeit cautiously) about the state of the market and those who were more sombre and downbeat at the beginning of the year. As the year rolled on, both sides appeared to have dug into their entrenched positions; the optimists pointed out the buoyant sales in the off-plan market (up 62 per cent year to date), whereas the cynics pointed out that this had come at the expense of secondary market activity, and that the spate of incentives offered by way of post-handover payment plans was the real catalyst driving sales.
Rental declines throughout the year meant that the pessimists had a “See I told you so” moment. The optimists pointed out the greens shoots in the mid-income segment of the marketplace, showing that in certain communities, prices had risen by the high single digits on a year-over-year basis (particularly in the new areas of Dubai South, Majan and Arjan). Some days, it almost felt as two tales of one city, as investors scratched to make sense of it all.
Thematically speaking, this year showed money flows into suburban mid-income areas for the most part, a trend that began in 2015 and has continued to grow from strength to strength. This is a trend that is likely to continue for the foreseeable future as developers continue to cater to the resident populace. While this trend has undoubtedly been given a boost by post-handover payments plans, it is pertinent to note that this was already underway before such schemes were introduced.
Important to highlight is the fact that the area that has seen the most visible hike in activity this year has been Dubai South, where the number of post-handover schemes that have been announced has been extremely rare. This shows that investors have been returning to the first principles of real estate, which is future location, future location, future location. Mid-income localities are expected to witness strong demand, as the market in Dubai balances in the second phase of its growth, moving somewhat away from the highend and towards areas where mid-sized, mid-income areas in “suburbia” start to proliferate and offer residents a greater choice and convenience in making the switch from tenant to landlord.
To be sure, this is a slow moving process; end-user ownership progress is measured in decades, not years, and it is important to note that the Dubai freehold market is still in the early stages of this cycle.
This trend has been accompanied with an increase in activity in the off-plan market; apart from the payment plans, what market observers have overlooked is that it is in the off-plan market where some of the most viable mid-income opportunities lie, both for the investor and the end-user alike. It stands to reason, therefore, that the latency of demand that has always been present for this space has expressed itself in the off-plan market, a trend again that is likely to continue for the next few years.
The broad brush takeaway remains the same as it has been over the last five years: this cycle of the “new normal” has been a return to first principles for the industry; an emphasis on the “bulging” mid-income segment. This will likely be accompanied with a far lower actualisation rate than what most industry experts assume, giving not only support to prices but ensuring that replacement values in this segment remains upwardly inclined.