Factors Fuelling The Present Dubai’s Real Estate Market

Dubai’s property market seems to be coming back on track.  According to Dubai Land Department in the 1st half of 2013, Dubai’s real estate sector has received total investments of around USD 14.5 billion (AED 53 billion).

The highest amount of investments have been made by Indian investors which is worth over USD 2 billion (AED 8 billion). Besides aspiration, the Indian investment in Dubai’s real estate market is driven by higher property prices and high lending rent in their domestic market as well as lack of transparency, which results in stimulating investments in international markets such as Dubai, Singapore and London.

It is followed by investments from United Kingdom and Pakistan which is worth USD 1.4 (AED 5.2 billion) and USD 1.06 billion (AED 3.9 billion) respectively.  Also there has been considerable increase in investments made by Middle Eastern countries such as Jordan, Lebanon and Egypt in Dubai’s real market. Their net investments in the 1st half stands at around USD 1.5 billion (AED 5 billion), more than twice the amount invested in the same period last year.

Investments made in USD billion by various countries in Dubai’s Real Estate Market – (First half of 2013)

% of Investments made by various countries in Dubai’s Real Estate Market – (First half of 2013)

Besides increase in property prices and announcement of new projects, it has been also been observed that various real estate companies are hiring again. This shows the euphoria is back in Dubai’s real estate market in 2013.  Given below encapsulates few factors, which are working in tandem to fuel the real estate market in Dubai at present.

Economic Growth: – After the economic slowdown in the 2008-09, Dubai’s economy has started demonstrating strong growth fundamentals. In the recent past, it has been driven aggressively by sectors such as logistics, trade, retail and tourism. Heightened economic activities have translated into higher investor confidence resulting into upswing in investment activities.

Arab Spring: – Arab Spring has been a blessing in disguise for the real estate market in Dubai. Due to the ongoing crisis in the Arab states such as Egypt, Syria, and Bahrain; investments from these states have been directed to Dubai, given the fact that the Emirate holds a reputation of a safe haven in the relatively chaotic Middle East region.

Crisis in Pakistan:- Another country which has been one of the pioneers in investing inside the Emirate is Pakistan. Surrounded by China, India, Central Asia and Arab world, present day Pakistan is suffering from political and economic downfall on account of ethnic clashes coupled with unwanted external influence. In addition to this,rampant  terrorist activities have resulted in further worsening of the situation.Consequently  many investors prefer  safe havens like Dubai to safeguard their investments. Pakistan’s interest in Dubai is also driven by the vast Pakistani expatriate population which resides in the Emirate.

Increase in rentals: – Along with the real estate market, the rental market is simultaneously on the rise. As of the first half of 2013, the Dubai’s real estate market has witnessed an average rental increase of 30 percent in the last twelve months mainly driven by heightened economic activity and increase in influx of expatriates. Rise in rentals are stimulating many residents to purchase properties as they fear to get entangled in further price increase. Moreover, if Dubai wins the World Expo 2020 bid, the rents are likely to further increase which is a positive news for the investors.

Favorable Lending Rate: – The growth domestic demand in UAE’s real estate market is also driven by favorable lending rates which are available to the residents of Dubai-UAE. The prices of funds in Dubai’s bank have reduced in the recent past due to surplus liquidity integrated with increase in competition. Over the last three to four years the lending rate has gone down to around 4.5 percent from 9 percent. Banks are also offering various other facilities such as low processing fee and reduced rate of interest for the 1st year to lure more customers.

Expo 2020: – Dubai has emerged as the most suitable candidate city in the race to win the bid to host the World Expo 2020. It is anticipated by experts around the globe that Dubai will win the bid, which will be announced this month. Winning the bid can catapult Dubai’s economy to the next level. World Expo 2020 is anticipated to be associated with over multi-billion dollar investments, creation of 300,000 jobs and over 25 million visitors resulting in massive economic expansion. The sheer magnitude of anticipated benefits associated with the expo is uplifting the investor confidence in Dubai’s real estate market.

Though the prices are still far off the 2008 peak values, the market in Dubai seems to be driven more by fundamentals rather than by fly buy dealers as in 2008. The government is also cautious this time and has undertaken a range of speculation curbing initiatives, in order to safeguard the market against any possibilities of second bubble bust. For instance, mortgage caps have been announced to regulate the market. Under this individuals can not a get a mortgage of more than 75 percent (80 percent in case of nationals) to finance properties less than USD 1.36 million (AED  5 million). There are different specification for  properties worth over AED 5 million and off plan properties.   We will publish a  separate commentary to highlight the difference between present and 2008 market conditions. The commentary will be published in one of our upcoming analysis.

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