Dubai Real Estate a maturing market?
Ever since the beginning of Dubai’s freehold revolution, there has been a requirement for increased regulation in the market as a whole, but specifically for real estate. Especially after the property bubble collapse left so many investors with bad experiences a few years ago.
Over recent years Dubai has seen increases in regulations and increased amount of stability in the market in general and in particular real estate. This putting a slow down on the astronomical growth seen in previous years leaving what some industry experts are now describing as a “Mature Market”.
Typically there are many definitions of what may help define a mature market, but a few key identifiers could be described as follows:
- A market is mature when it has reached a state of equilibrium.
- When customer needs/desires do not appear to be evolving too rapidly.
- Consolidation by leading competitors reducing competitive/exuberant intensity.
Market shares of leading competitors being solidified and changing gradually, if at all.
- Regulatory frameworks, legal protections and regulations aimed at protecting consumers and businesses are in place and implemented.
- Steady regular profits and growth for the developers
However for the real estate market there are some unique caveats. Primarily being that there is limited amount of land available for purchase (especially in highly populated cities) and that the demand for this land is ever growing, as the populations increase and demands on a city grow.
While not getting huge short-term returns, it is usually seen as safe and profitable to invest in some classes of real estate. This due to factors such as creating steady growth and protecting investors funds. Thus Mature Markets attract the most real-estate Investment, particularly from institutions who are seeking a relatively low risk investment with very favourable returns over the long term.
What are the signs
As a whole the United Arab Emirates has only recently been classed as an emerging market by the MSCI. This means it has a long way to go before it’s on par with more developed countries and cities. We asked Andrew Chambers, CEO of GGICO Properties and long time real estate veteran. What would be the signs the market is maturing?
- INCREASED REGULATIONS AIMED AT REDUCING SHORT TERM SPECULATION AND FLIPPINGIncreased regulations aimed at reducing short term speculation and flipping.This when speculators buy, with minimal deposit down and flipping or reselling before property is even registered with Oqood.Whilst this was rampant, it is much less prevalent now , with RERA regulations prescribing registration of transactions. Also, the rate of capital growth of property has slowed tremendously compared with certain years over last decade. Indeed, there are still many “distressed” assets being effectively worked through to retrieve the property to sell in rational manner.On top of the increased regulation in the UAE, countries traditionally bring capital into the UAE, such as India, Pakistan and CIS and MENA. Have all been hit by the recession and other political or economic problems since the recession. Thus, their residents are reducing their level of UAE property investment.
- MORE NEGOTIATION
Buyer and seller expectations on a price to exchange are at least close enough to allow for realistic negotiations. At present , in the open market individuals are asking higher prices than buyers seeking a “bargain”, or at least a reasonable price, are willing to pay. This has slowed the rates of sale in the market
- LESS RISKY FINANCIAL LEVERAGE
When small , in terms of financial backing, firms or individuals borrow multiple times their own assets/cash/capital and speculate on “off plan” or projects with Payment plans in hope that they can resell and make a premium before later payments due. Current market still has this happening, but to a much lesser extent with problems ensuing.
- STABILIZING MARKET PRICES
We have seen and still see more of a Supply Driven market, which has suited Dubai’s great growth and has worked when viewed over 10 years or so, but with a now steady, measured and considered growth , a planned release of product will help stabilize the market. The market remains a little over supplied at the luxury end and the impact of lower oil prices and stronger dollar will undoubtedly dampen the demand from overseas investors; however domestic demand at the mid end remain inelastic to these macro trends, and developers and investors that capitalize on this will be amply rewarded in the years ahead.
- BROKERAGE MARKET
When Brokers are all accountable and transactions transparent with effective policing of same and consequences for not following rules.Tremendous steps have been and are continuing to be taken to control behaviour of brokers and this is now becoming much better controlled. Also, a slow down generally is seeing a clear out of many non performing agents and agencies. Less rogue agents and slowing down the amount of players in the market will be good for market confidence and stability.
The last decade has seen an enormous volume of Top End/Luxury property become available, which has sold well. This catering to the enormous amount of capital inflow from both the region (for a number of reasons) and from further afield due to good governance, tax status and security seen in the UAE.Unfortunately , this has left behind the requirements of regular, salary earning expat demands from those living and working here, with requirement for more modest housing that can be afforded from salaries and a level of mortgage.This is now starting to be addressed by some developers in areas such as SO and DSC, where more mid level property, with good payment plans allowing people to buy to occupy .This being good sign for a maturing market, as these “investors” will buy to occupy or to rent as a modest investment.. Good for a mature property market.An affordability analysis highlights that 10% of the working population will be eligible for a home loan on their residence. The major beneficiaries of this dynamics will be IMPZ., SO and Sports City. Only 2% of the population can either afford to rent or buy properties above 2 million, implying that within this segment there is a strong presence of ‘vacation home buyers’ or where the ultra-high net worth own multiple properties as part of their asset portfolio.And of that 5% not all will be in a position to have sufficient capital for the deposit, or expatriates whose long term plans are heavily tied to their job prospects.
- CLEARANCE FROM BANKS BOOKS OF TOXIC/PROBLEM STOCK
The past 5 years has seen banks stuck with much non performing or incomplete property in default. Not good for a stable property market. This seems to be being resolved now, with many projects restarted with adequate finance and good business plan to see the construction to completion.
Whilst there is some way to go for Dubai to be recognized as what the world sees as a Mature Market, Dubai has well survived turbulent times and a number of the issues raised here either resolved or in the process of being resolved.
Nevertheless, it is still important to keep Dubai as being seen as a robust and very positive market position in the World’s eyes.
This can be helped with the continued investment in infrastructure and continual innovation and investment in such opportunities as EXPO2020, WC Airport growth, continued development of tourist attractions such as mid range hotels, theme parks, and other attractions to boost further Tourism growth .
Land in Real estate is a finite resource, yet the population is growing. Dubai’s population has grown by approximately 7% per annum (75% of the growth from net influx of people)
Dubai is well on track to become one of the financial and trade hubs of the MENA region, with some reports stating it might grow to beyond 5 million population . Putting the city in line with other international cities.
Originally published in Property Watch http://www.propertywatch.ae/market-overview/dubai-real-estate-maturing-market-ggico/