Ironic as it may sound, for a city that prides itself on towering skyscrapers and a billion-dollar-skyline, Dubai’s real estate has seen a few lukewarm years. Muted demand in the emirate’s property market has resulted in falling sales and steady price-correction. But a slight spike in sales could bring some much-needed cheer to the market. Or will it? The answer to that question is a tad layered.
When Dubai was announced as the host for Expo 2020 back in 2013, property prices in the Emirate began picking up steam. But this was short-lived, as prices began plateauing in mid-2014. "We are seeing about a 20 to 25 percent drop in residential prices from their peak levels in 2014,” said Dana Salbak, Associate (the Middle East and North Africa), JLL.
The bright side to this trend, however, is the well-known fact that a flat property market is almost always a buyers' market and Dubai is no exception. The trend of correction in Dubai's property prices has led to a rise in sales for the months of June, July and August 2019, according to real estate observer Data Finder. The three summer months saw a 33.4 percent rise in the number of residential sales transactions, which in turn has resulted in a 14.4 percent rise in sales volumes.
Data Finder reports that this growth has translated to a whopping 8,833 property transactions between June and August this year, against 6,618 deals a year ago. The 14.4 percent rise in sales volumes has translated into a total transaction value in excess of AED (United Arab Emirates Dirham) 14.94 billion, versus AED 12.58 billion in business last year. That puts real estate transactions, by value, at a four-year high. While on the face of it, this is being seen as a possible recovery in the real estate market, analysts are sceptical.
"There is still room for prices to drop even further. However, it will be a single-digit decline,” said Salbak, “So, between 5 and 9 percent in terms of a decline is what we can expect from now till the end of the year, and in the first six months of 2020.”
The reason for unabated price correction could well be because Dubai’s developers haven’t exactly reined in construction activity. Another report by real estate observer JLL says that 6,300 new homes were completed in the second quarter of 2019, which pegs Dubai's total residential stock at 5.36 lakh units. With 42,000 more new homes slated to hit the market by the end of 2019, the report says Dubai's real estate inventory will stand at a sizeable 6.59 lakh homes by the end of 2021.
But some of Dubai’s more well-known developers feel that expecting prices to correct further is unrealistic: “The real (credible) developers here have already cut down on prices, I don’t think anything further can be reduced,” said Sobha Group chairman, PNC Menon, in an exclusive chat with CNBC-TV18. Menon added: “If that (further price-correction) does happen, either quality will suffer or the businessman will suffer. That maturity (to desist from further price-correction) has already hit the market.”
Even as the numbers seem to suggest that the market will most certainly stare at oversupply yet again, developers have begun falling back on brand and pedigree to sell homes. “The Dubai market is just getting stabilised. There cannot be too many operators, and that's what the truth is,” said Menon, “If there are too many operators, the right ones will get the market to choose between the boys and the men. It will happen soon.”
A continuing price-correction and piling inventory have, however, forced developers to get real when it comes to pricing and sizing. So, what was once a 2,500-square-foot apartment, which would have been off the shelf in a matter of days, is a now a 1,500-square-foot unit in the hope that the price tag will match with prevailing home budgets. But not all developers subscribe to this view. Some say that buyers are for quality, reliable and completed real estate backed by deep pockets. This audience, these developers say, is insulated by the vagaries of the real estate market.
"Today transactions are going to be in the ready-goods market. The end consumer is more confident when it comes to buying something they can touch, feel and move into next month,” says Raju Shroff, managing director, Regal Group, “By constructing and completing their projects, developers have ensured that there is a lot more activity for the consumer because they get easy finance, they can touch and feel the product, and they can visualise life in their new homes without waiting for years (for completion)."
Renewed home-buyer interest notwithstanding, there is a need to resurrect Dubai's real estate market. The United Arab Emirates (UAE) government has responded by issuing gold cards and long-term residency permits to get high-earning individuals to stay longer and hopefully buy more homes. It plans to hand out 6,800 such gold cards by the end of 2019. The administration has also put in place a special committee to regulate real estate activity — another clear attempt at keeping the supply in check.
"The government has announced the Higher Planning Committee for real estate whose main target is to control this demand between demand and supply,” says Salbak, “So, this realisation means that both the private and public sectors are coming together to control the market, which is quite essential.” She adds: “Real estate accounts for about 15 to 20 percent of Dubai's gross domestic product (GDP). So, we are going to need to come together and ensure that the market stays afloat.”
Market factors suggest that the worst may not be over for Dubai's property market. But some green shoots are visible, thanks to upbeat sentiment surrounding Expo 2020 Dubai, and policy overhauls by the UAE government in an attempt to regulate the market and ensure stable pricing.