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What they will not tell you about the most luxurious event in the world

11 Jun , 2018  

In the lead-up to Expo 2020, Dubai’s property market is heating up—but it’s not all good news for luxury real estate

 

K Fernandez

 

For those keen to establish a second home abroad, now might be the time to take a closer look at Dubai, home to Bollywood stars and a haven for politicians from everywhere. Although the Emirate’s property market has been declining for several years, the upcoming Expo 2020 is expected to yield a tidy profit for investors.

The giant exhibition is set to open in two years’ time, and the UAE government expects that it will attract 25 million visitors and new residents—as compared to 15.8 million in 2017. The consequent economic uptick is likely to benefit the property market, as Sapna Jagtiani, S&P’s credit analyst for corporate and real-estate ratings, told Reuters. Agents on the ground agree. “Government spending in the run-up to the Expo 2020 has already increased [by almost 20 per cent from 2017 to 2018] and construction in infrastructure, hospitality and retail sectors is in full swing,” said John Stevens, Managing Director at Asteco, the Middle East’s largest full service property management company, in an email to BlackBook.

 

 

The total value of major Expo-related projects reached AED11 billion ($42.5 billion) at the end of March this year, according to data from the digital intelligence platform BNC Network. Over the same period, the total value of the top 10 active projects linked to the event exceeded Dh120 billion ($32.7 billion). The volume of construction is expected to have a knock-on positive impact on the overall economy and improve consumption.

The majority of new projects are in Dubai South, a new area close to the Expo site and to the new Al Maktoum International Airport. Also known as Dubai World Central, the hub will become the new home of the Emirates airline by 2025.

Yet, continuing market supply is expected to keep capital values weak over the medium term. According to property consultancy JLL’s Dubai Q1 report, 3,000 new residential units were delivered in the first quarter of 2018, with 78 per cent of these being apartments. A further 42,000 are currently under construction and scheduled for delivery by the end of 2018. Market expectations contradict those numbers, however; going by Q1 deliveries, only another 9,000 to 12,000 units could actually be handed over before the end of the year—a figure in line with the average over the last two to three years.

Formerly known for its circumscribed focus on luxury, the market has now begun to expand at the lower end of the scale. “Dubai’s real-estate market has adjusted to more negative market sentiment in the first quarter of 2018, resulting in developers focusing more on affordable options,” Craig Plumb, Head of Research, JLL Mena, said in a statement. “With rents continuing to fall across the office and residential sectors, building owners and landlords are increasingly looking to incentivise to retain current tenants by setting more competitive prices and attractive lease terms,” Plumb added.

 

By 2025, the Al Maktoum International Airport will become the new home of Emirates airline. Image courtesy: Facebook/DWC

By 2025, the Al Maktoum International Airport will become the new home of Emirates airline. Image courtesy: Facebook/DWC

 

The introduction of a value-added tax (VAT) of 5 per cent as of January has further depressed property prices. S&P believes that the market may be cooling further as geopolitical risks from Iran and Qatar add to investors’ basket of worries. “We believe this correction will continue at least for this year and next, before prices stabilise in 2020,” Jagtiani told Reuters.

Developers Emaar and Damac, two of the biggest players in the sector, reported 16 and 47 per cent drops in profit respectively, in the last quarter of 2017.

Some agents believe market fundamentals remain strong, however. “The outlook for Dubai’s economy and real estate market remains positive despite some key risks that must be monitored and managed,” Taimur Khan, a Senior Analyst for Knight Frank, told Gulf News. “As regional economies adapt to the new norm in oil prices and Dubai diversifies economically and in line with Vision 2021, and government infrastructure spending continues ahead of Expo 2020, we anticipate GDP growth will accelerate in 2018, spurring the residential market.”

Like many insiders, he weighed in favour of established communities such as Dubai Marina and Downtown Dubai over new build and off-plan developments. “We also note that price performance will continue to diverge in 2018 across Dubai. Neighbourhoods where a significant delivery of new supply is expected are likely to continue to see prices soften,” he said.

 

Many analysts are of the opinion that developing established Dubai Marina and Downton Dubai are more profitable than investing in new build and off-plan developments

Many analysts are of the opinion that developing established Dubai Marina and Downton Dubai are more profitable than investing in new build and off-plan developments

 

In the final analysis, then, although Dubai represents an attractive entry point for real estate investors with its newfound focus on affordable homes, the present market belongs to those buying for personal use, perhaps as a holiday home, and to those with a long-term outlook. “It is definitely a buyer’s market, but whether to buy now or wait depends on the reasons for the purchase,” Stevens said. “A question to ask is: will there be any better investment opportunities in the future? Just because we expect further reductions in sales prices does not mean the products offered going forward will be a better overall investment,” he concludes.

 

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