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CONTINUED CONFIDENCE IN DUBAI MARKET

As a safe haven within a volatile region, Dubai cements its place as the Middle East’s preferred real estate investment market whilst maturing market conditions bode well for more sustainable real estate growth.

August 2015

With Cityscape Global 2015 just a few weeks away, it is time to take an in-depth look at current market conditions in the event’s host city and birthplace – Dubai. The 14th edition of the Middle East’s largest and most influential real estate event, which will take place from 8 – 10 September at the Dubai World Trade Centre, this year shows a 30% growth in exhibition space on last year, underlining the continued confidence in Dubai’s maturing market. Over 300 exhibitors from the UAE, Turkey, the UK and many other countries from around the world will showcase their projects to an audience of real estate investors, professionals and government authorities in the three day show which is viewed as the barometer of the region’s real estate industry.

INVESTOR SENTIMENT

First of all, let’s look at Dubai in its regional context from an investment perspective. In 2013, the emirate was tipped as one of the world’s hottest real estate investment markets. Two years onwards, Dubai continues to maintain this status, which is evidenced in JLL’s latest MENA Investor Sentiment Survey which has found that Dubai remains the preferred destination for foreign investment in the Middle East. According to the survey, key attraction points for investors include the UAE’s political and economic stability and market transparency which has been further fuelled by the favourable performance of the real estate sector over the past two years, particularly in Dubai.

Ian Albert, Regional Director Colliers International MENA, adds that further key attraction points for investors currently looking at Dubai are yield appreciation, reasonable service charges and a good standard of property management. “Investors in Dubai now consider long term strategies rather than short term gains,” Albert says.

Mat Green, Head of Research & Consultancy UAE, CBRE Middle East, agrees saying that although the Dubai market has cooled off slightly during the past year (due to a combination of government intervention, global economic uncertainties and looming new supply), “Dubai still remains the most attractive investment market in the region, with continued interest from local Real Estate funds, REITs, as well as institutional investors.”

In light of this, Green points out that a lack of available investment grade assets, rather than a lack of demand, remains a key challenge for the investment market with many investors in the Middle East characterised as ‘buy and hold’ investors, obviously restricting market liquidity.

HAS THE MARKET BECOME ‘SMARTER’?

Looking at the Dubai market recovery and the rapid price growth over the past two years, the inevitable question is: are today’s market conditions fundamentally different to those of the pre-crash times?

“Yes, conditions are now fundamentally different,” says Craig Plumb, Head of Research at JLL MENA, as do all of our other experts.

Plumb identifies five major areas why JLL believe the market is ‘smarter’ the second time around and why another bubble will probably be avoided:

Prices have stabilised without crashing

“Following unsustainable levels of price growth (average residential prices in Dubai increased by 56% in the 2 years to July 2014) the market has stabilised over the past 9 months – with a decline of around 5% since July 2014 peak. This stabilistaion is certainly good news for the overall market and has resulted in much more sustainable conditions and removed all the previous discussion of another bubble.  JLL believe prices will continue to decline and have forecast a price decline of around 10% for 2015,” Plumb says.

According to JLL, there are three major reasons for the stabilisation of prices. Firstly, buyers have recognised that prices had risen too quickly and that there were no prospects for short term capital gain. Secondly, the strength of the US dollar reduced the attraction of Dubai real estate for the 75% of overseas buyers – especially those from Russia, India and the Eurozone. Lastly, government regulations to reduce speculation have taken effect and “taken the heat out of the market.”

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