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What’s driving Dubai’s real estate recovery?

Dubai’s real estate market has already picked up and sales are on a high at the moment leading to an increase in transactions in the coming months

Dubai’s real estate market was once regarded as the stars on which the investors pinned all their hopes. Looking back, the rise and fall of Dubai’s real estate market have been equally spectacular. Given the plethora of unsold homes and scant prospects, the recovery for the real estate sector in the oil-rich country seems like a long one. Shares in Emaar Properties, an industry bellwether and the developer of Burj Khalifa, the world’s tallest tower, have dropped almost 80 percent from their 2014 peak. Before this, the average real-estate price in the emirate was 30 percent higher. Back in 2017, a similar slump was recorded by Damac Properties Dubai.

Additionally, Union Properties is talking to restructure debts and is currently trading at a 90 percent discount from its 2005 level. Thanks to cheap valuations and expectations of government support, not even a majority of buy recommendations from analysts are enough to change the current sentiment. Along with this, the companies have also created a supply glut. It is only worsening because many expatriate workers have exited and account for the majority of the city’s population.

In recent years, the scrutiny levels have increased after shareholders of Arabtec Holding, which helped to build the Burj Khalifa voted to dissolve the firm. The company drawing its curtains certainly sends an alarming message for the construction industry in the UAE, warned the experts. Apart from the slump created due to the above-mentioned reasons, the macroeconomic sector has also added to the city’s real estate woes. Dubai’s economy witnessed a sharp contraction in 2020 due to a steep decline in the travel and aviation sector as both have become more vulnerable to the effects of Covid-19.

Market analysts have predicted that the city’s gross domestic product (GDP) will take till 2023 to reach the numbers of 2019. Additionally, the geopolitical tensions are adding extra worry on the plates of investors which is already overflowing. Some of the major stocks in the sectors were already sold at times of rising tension in the region, for example when the oil tankers in the Gulf of Oman were attacked last year.

Since Dubai is already a business hub for many multinationals, the majority of the real estate business comes from international investors, as well as second home buyers which are planning to migrate to the city in the near future. Mohab Samak, Managing Director of the Engel & Völkers Market Center Dubai told International Finance, “With EXPO 2020 coming to Dubai paired with the coming 50th anniversary of the UAE formation, we are expecting a lot of business that will be driven towards the real estate sector. Another factor is the payment plans provided directly from the developers which will help buyers to save the bank interest. Developers like Emaar are now providing a ‘balloon payment option’ which allows the buyer to pay 50 percent of the property value 3 years after the handover.”

Dubai residential prices on the rise for the first time since 2014
As predicted by numerous market analysts, Dubai house prices will see a rise for the first time in six years in 2021. This is primarily due to the swift vaccine rollout programme that has lifted spirits for overall economic recovery. The real estate market of Dubai has been weak for years due to the excessive oversupply along with low economic growth. But recently, the second-wealthiest emirate in UAE, eased Covid-19 restrictions and allowed hotels to operate at full capacity, raising hopes for a region heavily dependent on tourism. Improved investor confidence can already be seen and there has been a boost in demand as supply has gained a steady pace.

Mohab Samak said that Dubai’s real estate market has already picked up and sales are on a high at the moment leading to an increase in transactions in the coming months. As per Dubai Land Department, the real estate transactions are up by 34.5 percent which is the highest number of total residential transactions since 2015.

“UAE government’s initiative in crisis management during the pandemic, steady currency rate during the pandemic, support measures helped in ease of doing business, long term residency law, etc. have helped Dubai get back on track,” he said.

Prime Dubai properties have also risen in the last few months as buyers take the advantage of low prices, easy credit, and an open economy. Dubai’s economy was expected to grow by four percent in 2021 after an estimated 6.2 percent contraction last year. The real estate market contributes up to eight percent in the economy and has seen a recent improvement.

Experts and market analysts say that the real estate market has been quite buoyant since the second half of 2020 and continues to get better. As more government incentives show better results, this is expected to have a positive effect on the housing market. The only potential downside of this is the current pandemic is lingering on longer than expected and it keeps affecting the economic growth and tourism in Dubai.

Speaking about the sale of luxury apartments finally picking up, Mohab Samak said, “Sales of luxury villas, sea-view apartments and second-hand family houses have jumped, re-energising the Dubai real estate market which saw a sharp fall in activity before the pandemic. As movement restrictions eased in mid-2020, capital values in Dubai began to witness positive growth trends, with April 2021 having a seven-year record monthly growth rate of 1.2 percent. Villas, particularly high-end ones, saw the best capital value performance of up to 3 percent, month-on-month.”

Along with low prices, relaxed mortgages and the popularity of more spacious properties have also increased, especially after the work-from-home has become a regular phenomenon after the pandemic. It has driven the secondary market sales transactions in Dubai to record highs every month since September. Given the dominance of secondary transactions, it very well marks a fundamental market shift for Dubai. While off-plan sales dominated previously, several developers slowed or halted new projects last year, including big names like Emaar Properties’ Dubai Creek Harbour, a luxury development of waterfront apartments designed to house 200,000 people.

Recently, Dubai’s villa property market has posted its best performance in seven years as the demand for residential spaces continues to grow. ValuStrat, a citywide price index that tracks price movements of villas and apartments across the nation recorded that it went up by 3.8 percent during the second quarter of 2021, which helped the emirate equate the residential capital losses almost entirely that it suffered in the previous year. The primary growth was recorded in the villa segment as it registered an annual increase of 6.3 percent and a quarterly increase of 7 percent, which is the highest since 2014.

Vaccines, visas is driving recovery
As the Covid-19 pandemic pushed almost the entire world workforce working from our homes, slowly things are getting back to normal. This year in March, the UAE cabinet approved a new remote work visa system that allows employees from anywhere in the world to live and work remotely from the Emirates. The cabinet also approved a multiple-entry tourist visa system for all nationalities to strengthen the nation’s status as an international economic capital.

The cabinet will also take the advantage of a global trend over the past year that has seen an increasing number of people working not just from home, but opting for places that provide a better quality of life, and have a better work-life balance. According to a survey by Savills FIT, it indicated that while demand for office space remains strong, the way it was previously used is rapidly changing. According to a Citrix survey, a large number of people believe that permanent employees will become rare by 2035.

In the past half a year, various mid-to-senior level executives, as well as high net worth individuals, have moved to the UAE and Dubai and others are expected to follow the same. With the introduction of the latest Visa scheme, individuals will have more control over their residency status as they won’t be bound to the traditional sponsorship given by the companies. This announcement comes at a time when the UAE is slowly recovering from the Covid-19 pandemic and as the real estate market picking up its pace.

The key local markets have already crossed the 50 percent occupancy threshold due to domestic and international demand. Dubai’s real estate market also recorded 3,787 sales transactions worth Dh7.43 billion in February, 13.8 per cent more than in January in terms of volume and 8.9 percent more in terms of value.

The construction sector also recorded the fastest growth since 2019 and experts say that other non-oil sectors are expected to gain further momentum from the second quarter of 2021, as global travel will resume and travel restrictions will be eased. Additionally, with the swift vaccine rollout and the reduced number of new Covid-19 infections, things are finally looking better.

In February this year, the total number of Covid-19 infections in the UAE fell by 22 percent and it currently ranks second globally in the daily Covid-19 vaccine distribution rate per 100 people. Needless to say, the UAE has done quite well in their efforts of handling the pandemic and was among the first countries to open its borders for business and tourism. The country also introduced quite a few measures to support and improve the ease of doing business along with making changes to laws allowing long-term residence. For example, the recent Visa announcement has further cemented the leadership of the region as a place to stay and do business.

Recently, the UAE also became the most vaccinated nation in the world and till last week, the nation has administered above 15.53 million vaccine doses. According to a report by National Emergency Crisis and Disaster Management Authority (NCEMA), 64 percent of residents are fully vaccinated against Covid-19, while 74 percent have received at least one dose. The UAE has also overtaken Seychelles, which vaccinated around 71.7 percent of its population and in May, the country also overtook Israel when it comes to vaccination administration rates. The UAE offers Covid-19 vaccines to citizens and expatriates for free and aims to inoculate 100 per cent of the eligible population by the end of the year.

Dubai Expo 2020 is expected to fast-track economic recovery
The business condition in Dubai is expected to see a positive change in the third quarter of 2021 as the confidence in the companies and investors grows once again, according to a survey conducted by Dubai Chamber. Around 66 percent of respondents expect to see better business conditions during the quarter, compared to 51 percent who said the same in the previous quarter. In the same survey, around 66 percent of business leaders were also optimistic about the business environment, compared to 48 percent in the second quarter.

Dubai Expo 2020 is expected to fast track Dubai’s economic recovery and boost its appeal once again among foreign investors and companies. The Expo is expected to foster economic growth by attracting visitors and boost its travel and tourism sector. The organizers expect nearly 25 million total physical visits between October and March 2022, especially since its expected that the flight restrictions from India will also be lifted.

In terms of business optimism, around 57 percent of business leaders said they expect a recovery in oil prices to positively affect the business environment in the third quarter. Dubai is known to have one of the world’s fastest vaccination campaigns, but even then, the daily count of fresh Covid-19 hovers around 2,000 as of this writing. The health ministry of Dubai revealed that around 73.8 percent of the UAE’s population has received one vaccine dose while 63.7 percent are fully vaccinated.

While the market has shown some signs of recovery, there have been several cutbacks that have affected developers negatively. When asked about what is the future of the real estate industry in Dubai for the next five years, Samak said, “With the EXPO coming to Dubai, we are expecting more numbers of businesses to be set up in Dubai which will increase the job opportunities that in turn will lead to an increase in demand for the real estate sector combining both residential and commercial sectors. Additionally, Dubai has always been recognized for its unique and spectacular projects and there is always room for a lot more developments that will be upcoming shortly.”

There is no doubt that the Dubai real estate market is gaining momentum as the emirate emerges from a Covid-19 induced slowdown. The second-richest emirate of Dubai is sure to witness a strong rebound in the second half due to stimulus packages, visa reforms and strong demand from end-users and investors, experts say. Leading experts and analysts also say that the residential sector has already bottomed out and offers good opportunities for developers on premium properties. The prices for villas and townhouses have already witnessed an upward trend in the past seven months and apartment prices have also started reflecting the stable trend.

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