Dubai real estate matures: Analysts

Dubai - Market size constantly increasing as emirate emerges as business, leisure hub.

The real estate sector in Dubai lost the steam it had amassed over the last two years in the first half in a clear sign of maturing, realty analysts said.
The Dubai market has indeed seen growth slowing down, but the size of the market is constantly increasing thanks to the continued trust of investors in its ability to bounce back and its rising status as one of the most important business and leisure hubs east of Africa.
Abu Dhabi, on the other hand, faced no such glitches and continued to see a calm and consistent rise is rental and trading values, introducing regulations that are certain to add to the market's charm manifold, Bayut.com observed in its H1 2015 Market Report.
"We have maintained for some time now that the market is undergoing a much-needed easing that would help it paddle away from troubled speculative waters. A recent LBS survey also stated that no drastic outcome was expected from the current easing.
"But we have noticed that the scepticism has mostly been a case of the glass being half empty," the report said.
It said while the slowdown continues, it will only be sometime before things turn around and head upwards. "We reckon things will move the other way come 2016 and rise there from, and our optimism banks on bright prospects of a continuous rise in the emirate's population, its status as a top tourist resort, its world-class leisure and hospitality facilities, and its importance as the core regional business hub."
According to Bayut.com, factors responsible for the real estate market slowdown include the Dubai government's measures against market overheating, a stronger dollar, Russian crisis and sanctions, oil price crunch effecting foreign investors, eurozone issues and a dreary IMF forecast for the global economy.
The strongest factor that remains in play is the market adjusting to shed off the excessive weight of prices it put on as the values rose over the past few years. The property sale values dropped between five and 10 per cent in first half 2015 compared to 2014. The current slowdown has driven out flippers eyeing quick gains. "Herein lies a chance for long-term players to make a calculated move and be prepared with the right arsenal once the battle heats up in the coming months.
Rental returns, as we also mentioned in our previous reports, continue to hold strong, with some areas even registering growth in values. Overall, Dubai's rental returns remain one of the best in the world (5-7 per cent) and offer enough impetus to an investor class to continue its endeavours in Dubai," the report said.
The report pointed out that the news of 25,000 new units entering the market has also become a question mark. Some analysts put the number at half that amount, while others point to the 20,000 mark. Even major developers are sceptical of the figure. "We believe around 15,000 new units will actually make it into the market this year, and consider the earlier number to be exaggerated and the fears of oversupply misplaced," said Bayut.com.
"From what we have seen, some project deliveries in first half coupled with the delayed impact of the Federal Mortgage Cap contributed to sluggish growth in the residential sector. Most investors opted to hold on to their properties and sit out the correction period, while trying to secure rental income in the meantime. A portion of the price decline could also be attributed to nervous sellers, whose lack of confidence - or experience - in the market made them sell short. But the phenomenon has been a blessing in disguise for tenants, many of whom are now planning to make the jump to homeownership courtesy of the market price correction," it said. Dubai's population is on the rise and over 200,000 job permits were issued in first quarter 2015 alone. The latter half of the year will witness a steady stream of workers flying into Dubai and a subsequent surge in the demand for residential spaces.
"With the sizeable working population in mind, we saw increased contemplation on the part of the government over the need for affordable accommodation for mid- and low-income households (households with income between Dh 3,000 and Dh12,000). The government has already allocated several hundred acres of land for affordable housing and we are hoping the idea will gain a stronger foothold in the months ahead."
Another important phenomenon during the first half of 2015 was the increase in demand for midmarket hotels in Dubai. This demand was driven by two main factors: the younger visitor profile with limited disposable income and a growing middle class in major source markets such as China, Pakistan, GCC, India and Africa. It was also observed that a scarcity of prime hospitality assets was shifting developers to more mid-market developments.
In Abu Dhabi, the real estate sector witnessed continued growth in the rental and hospitality sectors in Abu Dhabi.   Residential sales, retail and office sectors remained stable. A reduction in government spending was expected this year following the decline in oil prices, which could have slowed down the pace of demand growth, but this has not happened during the first half of the current year. In contrast, the short-term supply of units in the market was generally constrained, leading to relatively stable market conditions.
- issacjohn@khaleejtimes.com