As Dubai has surged to the forefront of the regional and global oil and financial sectors its nonetheless fledgling real estate market has been left to figure out its place on the world stage. After the global financial crisis exposed the susceptibility of the market to the whims of global credit and investment, the good news is Dubai seems finally to be finding its niche. Subdued growth is a trend we encountered often in 2014’s analyses of the market, which finally seems to be leveling off after 2012 and 2013’s emergent recovery from the wreckage of 2008.
We are once again betting on Dubai due to several trends coming out of recent data. Gulf News reports that “the IMF has forecast the UAE inflation rate at 2.2 percent and 2.5 percent for 2014 and 2015 and has warned that the strengthening real estate cycle, particularly in the Dubai residential market, could attract increased speculative demand leading to higher inflationary pressure.” To counter such warnings, the Central Bank of the UAE has issued newer restrictions on lending and heightened transaction fees, reporting lenders were less likely to extend credit to buyers in 2014 than in 2013 (Knight Frank). Supply of square-footage in both the residential and retail sectors has grown more slowly every year from 2011 to 2014 (JLL). This is expected to increase dramatically again in 2015 – further curbing inflation in the market – due to the serendipitous completion of projects such as the Discovery Gardens (93,646 sq. ft.) and Jumeirah Park (114,097 sq. ft.) Community Centers in the third quarter of 2014 (JLL via ameinfo.com). Such upcoming availability coupled with what JLL describes as a trend, “to attract more end-users by introducing flexible payment terms, with a higher proportion of the final price payable due after handover,” means 2015 will be a good year to buy in Dubai. The upswing in expected new supply should cool again by 2016 and calm any concerns of a repeat of 2008 (JLL).
It seems at last that middle-range properties are finally catching up to speed and that the prime and luxury markets are settling in nicely as far as pricing is concerned. “Year-on-year growth remained positive overall with a 31 percent and 17 percent increase in sales prices for apartments and villas,” according to Asteco’s Q3 report (khaleejtimes.com). Knight Frank reports that prime property prices are up 6.3 percent from last year while mainstream prices grew by 24 percent. Similar trends would seem to hold for the office segment of the market: Grade A office space in Dubai’s central business district held steady while office space outside the CBD continues to fluctuate in price due to quarterly supply disparities (JLL).
It is a fact of the Dubai market at the moment – mainstream property is becoming more expensive at a faster rate than luxury property. It may not be the best news for glitz and publicity, but it means great things for the long-term viability of real estate in Dubai. It means the desert palms and mirror-glass skylines that have caught the world’s eye are worthy of more than a fleeting infatuation.
Asteco’s Q3 2014 market report