Overview Of Dubai’s Real Estate Market

In 2013, Dubai’s economy seems to have come back on track with an estimated GDP growth of 4.7 percent. One of the fundamental pillars of recovery was revival of euphoria in the real estate market which has registered a total transaction of AED 236 (USD 64.25) billion, an exorbitant 53.2 percent increase from the year before. The transaction was split into AED 166 (USD 45.2) billion worth of land sales and mortgages and AED 62 (USD 16.9) billion worth of housing unit sales and mortgage. Slightly less than half of the purchases were made by international buyers.

Interestingly, they came from 162 nationalities, indicative of the global interest in Dubai. The total investment made by Arab world  accounted for AED 45 billion, in which GCC accounted for a lion’s share of AED 33 billion. Among non- Arab world, Indian investors made the highest investment followed by United Kingdom and Pakistan.

Other countries making substantial investments included France, Germany, Russia, America and Iran. In tandem with the sentiments, Q1 2014 witnessed a total investment of AED 35 (USD 9.3) billion, up from AED 22.3 (6.07) billion in Q1 2013. Indians were the biggest foreign investors followed by Britain, Pakistan, KSA and Qatar.

2008 Debacle – However, if we rewind five years back, the real estate market was in a dismal situation. On the backdrop of a global meltdown, the real estate market, that till then enjoyed a robust track record, collapsed. Prices of properties were shot down by 50 percent and large numbers of them were left unsold. Experts believed that along with the global meltdown, it was unbridled speculations and discrepancies in regulatory framework, which further intensified the debacle. Given the fact that real estate was significant to Dubai’s economy, the negative vibrations traversed to other parts of the economy as well.

Comeback – Notwithstanding the criticism, the emirate under the leadership of Sheik Mohammad and his team, soon pulled its game together and launched a valiant comeback. The scars of the economic crisis did not last long and by 2012, it appeared that Dubai was back on track. Last year in 2013, the economy registered a 4.7 percent growth rate and prospects seem bullish for the time ahead. An icing in the cake was winning the bid to host World Expo 2020, which is expected to be associated with a total economic activities of AED 89 (USD 24.2) billion in the near future. Aligned with the economic resurrection, the real estate market in UAE is multiplying fast as mentioned above. Prices of the properties have shot up and fuelled by the euphoria of the World Expo, it is presently touted as the hottest property market across the globe in terms of Return on Investment (ROI). Every other day major residential, hospitality, office and retail projects are being announced, further indicating that euphoria is supposed to stay. Many of the old projects, which were once shelved off have been revised.

Underlying Factors – There are few underlying factors such as Economic Resurgence, Bank Credit, Regional and Global Economic Dimension and World Exposition 2020, which seem to be crucial role in the present Dubai’s real estate sectors. The positivity in the present real estate market in Dubai is closely linked to similar sentiments in the economic sphere. Economic resurgence is translating in more jobs, pay rise and liquidity, which in turn is getting expressed into higher demand for real estate. Besides an exorbitant price hike of 30-35 percent in properties, rental market in the emirate is also expanding fast with a rate of 20-25 percent, as observed in 2013.

A dynamic tourism and hospitality, trade and retail sector are also instrumental in stimulating a hike in hotel, industrial properties and shopping malls, which are other key components of Dubai’s property market, besides residential and commercial components. Office markets are also experiencing price and rental hikes, but the demand seems to be higher for premium properties, while for others it is still subdued Economic growth is also stimulating higher credit in the market, which in turn is enticing residents for going after housing aggressively.

Presently anyone with a monthly salary of AED 20,000 (USD 5,400) or above has access to good loans. Interestingly however, in the present market there is a preponderance of cash transaction, which is also believed to be a cushion against any unnecessary heating of the market that happened in 2008 due to excessive credit based transactions.

Notwithstanding the economic resurgence, real estate market is also accelerating on a backdrop of some regional circumstances. Dubai is located in the vicinity of numerous countries and regions which are suffering from political crisis, such as Syria, Egypt, Turkey, Libya and Pakistan.  Under such circumstances, Dubai’s real estate on account of its stable socio-political environment coupled with powerful economic fundamentals, offer an optimum avenue to invest. Even in politically stable countries such as Russia and India, there is a huge interest towards properties in Dubai pertaining to its recent growth numbers.

The present World exposition is also fuelling up the real estate sector in Dubai. If our estimates serve us right we believe nearly half of the price rise observed recently, could be attributed to the euphoria generated in the emirate due to winning the bid to host World Exposition. An interesting development emanating out of the exposition have been the rapid extension of the city towards its south, where the proposed Dubai World Central (DWC) site for the exposition will be located. In addition it is expected that as the preparation for exposition will unfold in near future, new business units will set up and existing ones will extend, which should further boost the office market.

Conclusion It could be concluded that still falling short of the thresholds of the 2008 era, when the real estate market in Dubai was at its peak, the emirate’s present property market is going through a very robust and euphoric phase and attracting investors from national, regional and global level on account of anticipated higher returns in the coming time.

The euphoria is led by residential sector along with hotel, retail and industrial properties. Though some experts fear another bubble on the route, but given the fact tighter majors are being undertaken by the government, it is believed that speculative forces will be kept under control. As most of the key pillars of Dubai’s economy such tourism, hospitality, trade and retail appears buoyant, further positive news should follow.

Research Konnection

This research report is compiled by Research Konnection Team; a Dubai based market research and business consulting firm that is focused on capturing latest insights of major events across various sectors and industries in UAE. If you are looking for more research, information and qualitative/quantitative data or want us to prepare feasibility studies, then feel free to contact us on waqas@researchkonnection.com.

Author: RKonnect
The author is the Managing Director of Research Konnection, a Dubai based market research and consulting firm that helps local and international companies to identify emerging business opportunities and successfully expand in the Gulf region. The author can be reached at waqas@researchkonnection.com
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