Back in 2008, Dubai’s first off-plan property boom crashed to a halt with the onset of the global financial crisis. This proved a major problem for the local economy, which was subsequently shored up with a $20 billion emergency package from Abu Dhabi in 2009.
Fast forward ten years and we’re seeing the quieter end of a smaller and shorter second boom in off plan property sales. This has ended with a correction rather than a crash. Does this mean that residential property in Dubai is about to see a major fall in values comparable to the 60% drop experienced in 2008? Luckily, this is unlikely.
Steady fall
The major difference between Dubai’s real estate market in 2008 and now is that house prices have been steadily falling for the last three to four years. Ten years ago, the market had to deal with the sudden stop in the off-plan market and plunging prices at the same time.
The correction we’re seeing now is very different, meaning that the recovery will also be different. Despite the spate of recent project launches in the property sector, there has been a marked downturn in off-plan sales.
We saw a 46% decrease in off-plan sales in Dubai in Q1 2018, and a 24% decrease in previously owned resales, according to property consultant Reidin-GCP. The Dubai Land Department (DLD) also released figures showing a 25% fall in the value of real estate transactions in the first quarter, when compared to the same period last year.
Cyclical market
However, actual house prices have been quietly decreasing in value since around July 2014, thanks to the doubling of transaction fees in 2013 and restrictions on mortgage lending. These added to the impact of a slump in oil prices led to slow decreases.
For example, a three-bed Legacy Large villa located in Jumeriah Park peaked at Dh5.5 million in Q1 2014. Four years later, it’s more likely to fetch Dh4 million, which is a fairly significant decrease. However, this is also a typical and expected down-cycle for this mature residential market.
Experienced investors will know that you can expect to see prices bottom out and then start to recover following a catalyst, such as a fall in interest rates. It could be that we are now seeing the bottom of the market, and it will begin to recover.
Ambitious developments
None of this seems to have stopped developers from launching ambitious schemes aimed at buyers and investors. Often, the very complex developments don’t get finished, but more down to earth ones do.
For cash-rich buyers it’s a great time to buy an existing property. It looks like prices are bottoming out and there is a lot of choice. Even buying off-plan is still a good idea, as there are good deals to be made. It’s always wise to be aware of the real possibility of late deliveries, however.
Oil factor
As well as understanding the real estate cycle, it’s always wise to understand the business outlook for Dubai as well as oil prices. For example, the 2014 crash in oil ended the post-financial crisis property recovery across the UAE.
Governments across the region have been investing heavily in infrastructure and housing despite lower oil prices. The property market is ready to take advantage of this, and for the Expo 2020 that will bring massive numbers of visitors to Dubai. In short, 2018 is looking much better than ten years ago for local real estate. Investors should be buying now and looking ahead to a good return.
About Samir Salya
Samir Salya is the Chairman of Reign Holdings and is involved in UK and UAE real estate and construction. Samir holds over 20 years’ experience in executive management, business expansion, performance improvement, sales and marketing.