Following a turbulent few years, Dubai’s property market is thriving among foreign investors thanks to excellent rental return and government initiates supporting stability.
Dubai’s high-end properties are spearheading market averages with prices having increased during the first three months of 2016, according to a report by Knight Frank. The residential and commercial property consultancy said prices in the prime segment increased two percent on a quarterly basis between Q4 2015 and Q1 2016.
Zarah Evans, Managing Partner of Dubai-based Exclusive Links real estate brokers, believes that as the country’s economy continues to improve, so too will foreign investment: “Despite the geopolitical unrest, Dubai is still considered as a safe haven. Property prices are reaching their lowest, mortgages rates are at their lowest and there remains the tax free advantages.”
The surge in the market was unexpected after the economy hit its slowest pace in five years earlier in 2016. Real estate and construction account for 21 percent of GDP according to the Dubai Department of Economic Development, and data from Dubai Real Estate Tracker showed that buyer inquiries and transactions fell in the last three months of 2015. However, foreign investment in the market could have been what has saved the country’s real estate revenue this year.
British citizens are the second largest investors inDubai real estate, having invested £1.9bn in 2015
According to real estate consultancy Cluttons, Dubai, Abu Dhabi and Sharjah have emerged as the region’s most popular investment destinations among GCC high net worth individuals. Cluttons’ 2016 Middle East Private Capital Survey – in partnership with YouGov – showed 27 percent of those surveyed identified Dubai in their top three destinations within the GCC, while 21 percent selected Abu Dhabi and eight percent chose Sharjah.
Data collected by the Dubai Land Department shows GCC nationals were the largest investors in Dubai real estate in 2015, with a total of AED 44bn ($11.9bn) invested or committed over the course of the year.
Specific locations named within the survey, popular for foreign residential investment, include The Springs, Bur Dubai, Deira, Jumeirah Islands and Jumeirah Village. For the office asset class, Deira, Downtown Dubai, Bur Dubai and Buiness Bay were most popular.
British citizens are the second largest investors in Dubai real estate, having invested £1.9bn ($2.6bn) in 2015, suggesting UK investor demand for high quality real estate is increasing. Dubai’s property market is made up of world-class infrastructure and a regulatory environment that ranks among the most favourable in the world.
The increase in British investment has been supported by the Dubai Property Show 2016 (DPS), held in London, which has established itself as a solid platform for UAE-based developers to present their latest projects in line with Dubai’s vision 2020 to become a tourism and business hub.
Trade shows such as DPS have proven effective in driving foreign investment in the past as they “create huge opportunities for real estate developers” and “reach out to one of Dubai’s realty customer base”.
An extremely attractive component of the market is Dubai’s rental yields, which are averaging just over seven percent compared with cities such as Hong Kong, which average around two to three percent, and London at three to four percent. In some parts of Dubai, such as The Palm Jumeirah in the Dukes and Anantara project developments, the yield can be as high as 10 percent.
Dubai growing yields are due in part to a robust rental market and an increase in job creation; renting continues to be a first choice for residents, as a quick and easy option compared with buying.
Dubai is in need of a boost in one of its leading sectors, having suffered a turbulent economy for the last five years. Dubai experienced a formidable debt crunch in 2009, borrowing billions from Abu Dhabi, which resulted in a freezing of $26bn debt owed by one of its largest government-related entities, Dubai World.
Dubai’s property market is made up of world-class infrastructure and a regulatory environment that ranks among the most favorable in the world
When it finally began to rebuild its economy last year, it was hit by the sharp fall in international oil prices. Although Dubai itself has little crude of its own, it heavily depends on the economic activity created by oil markets in Saudi Arabia, Qatar and Kuwait. These leading countries for oil production also suffered following the drop in oil prices, which affected trade with Dubai.
In order to ensure it doesn’t find itself in the same economic position as 2009, Dubai will need support its property market – driven by foreign investment – as it quickly progresses and drives sectors such as tourism, hospitality and retail.
However, relying too heavily on the property market places the industry under a lot of pressure. Other leading sectors including banking, insurance and IT should also be taken into account when monitoring the country’s GDP.
Ultimately, the growth of the property market is linked with other sectors in the country’s economy. Dubai has a tourism infrastructure that can support both an expat style of living and business employees wanting to reside in the area.