On Stable Ground: Dubai real estate prices stabilise amidst strong off-plan sales

In recent months, the UAE real estate market has been on a steady upswing in sentiment and projections. As the epicentre of regional growth in the sector, the city of Dubai is at the core of this optimism. Several regulatory, macroeconomic and demographic factors have contributed to the resurgence. Perhaps the greatest asset of the Dubai real estate market is that despite having experienced a price plateau in recent years, investors have continued to find its fundamentals compelling and attractive.

The recent recovery in oil prices is looking set to strengthen further, and several of the most respected voices in the international macro-economic assessment arena are also very positive about the future prospects of Dubai in terms of its evolution to a mature and much more diversified economy. Speaking at the Fourth Annual Arab Fiscal Forum, in February, Christine Lagarde, Managing Director and Chairwoman of the IMF, singled out Dubai as ‘the city of tomorrow’⁽¹⁾.

The Dubai government has initiated a wide variety of measures in recent months to help stimulate the city’s real estate market, and the temporary plateauing is slowly being replaced by stability and growth. The recent positive assessment by investors and world economic bodies is serving as a measure of this resurgence. Changes in regulation are enabling the proactive engagement of international investors and the city’s sizeable expatriate population. A firming US dollar does present some challenges, but responsive administration by the government is resulting is growing confidence that these external pressures will be managed effectively.

Off-plan purchases have been a highly active component of overall sales in Dubai real estate and trends in early 2019 indicate their continued positive influence on the market. The Q1 reports from online real estate portals, Bayut and Property Finder, both highlight the stability that the segment is promoting in the market. While the Bayut report suggests that prices have either been unaffected or are only marginally lower in Q1 2019⁽²⁾, the Property Finder report pegs the off-plan segment at 55% of total sales⁽³⁾. Gemini Property Developers CEO Sunil Gomes believes that the most significant positive indicated by these reported metrics of the Dubai real estate market is the strong overall growth and stability they represent. In Sunil’s opinion, the fact that the secondary market deals make up 45% of total sales, indicate the growing influence of owner buyers – which signifies the move to a more stable and mature market over the medium to long term. Sunil believes that the good news for Dubai is that both the already healthy ‘property-as-investment’ sector, as indicated by the performance of the off-plan segment, and the substantially expanding ready property market, are healthy. Sunil believes that this rise across the spectrum of Dubai’s real estate stock is a good measure of a firming market.

Positive market response to innovative offers

Real estate markets, even those as dynamic and attractive as Dubai’s, are notorious for manifesting growth gradually, even when sentiment is optimistic. This is generally the reason why market turnarounds first register as stability in prices, before measurable positive growth becomes apparent. And the same is true of Dubai’s real estate market. The Dubai development community had bet on a revival in investor and buyer interest, offering very competitive financial arrangements and packages to drive the demand. The stabilising numbers indicate that their innovative offers, and the administration’s legislative changes, are producing the desired response from the market.

While Dubai has always attracted international investors, in part due to the competitive rent-to-mortgage ratios, the market metrics indicate that the measures targeting end-users and first-time-buyers are also bearing fruit. This is a matter of some significance since buyer-friendly innovations can add to the pressures on the market if the response to them is weak. IMF figures, released in the final months of 2018, project a prospective growth rate of 3.7% for the UAE economy in 2019⁽⁴⁾, as a result of better fiscal management and economic diversification. It is not an unrelated coincidence that proactive strategic stimulus aimed at the real estate sector is producing a similar buoyancy in sentiment, as that being reflected in the general macroeconomic assessment of Dubai. Sunil believes that the Emirati city’s diversification in commercial activity, as well as the growing influx of professionals in a wide array of industrial sectors, is producing the perfect conditions for a more mature and stable market. To the credit of the local development community, their customer engagement strategies and innovative offers also seem to be paying dividends.

Strengthening market could be the beginning of a prolonged expansion

The Dubai government’s vision for the Emirati city is that of a globally integrated, resident-centric and future-ready metropolis, that aspires to be no. 1 in the world, in terms of livability and Smart City solutions. Should this vision come to pass, it will naturally have a tremendous impact on the local real estate market. The encouraging thing for the industry, and all its stakeholders, is that while the Dubai of the future is still a policy vision, the assessment of international economic bodies and investors is already an endorsement of current policies and trends.

The world is being rapidly transformed by the rise of technologies that will redefine every aspect of our civilisation and Dubai’s investment in adopting and embedding these innovations will draw a large population of new businesses, residents and investors. According to Sunil, Dubai’s dynamism and inherent ability to embrace innovation is already marking it out as a city of the future. Sunil predicts that the city will see a new wave of expansion centred around holistic developments, higher adoption of proptech and infusion of tech-led conveniences to meet the expectations of a new niche of younger, modern buyers. Sunil affirms that developers are attuned to the growing co-working trend and are increasingly focused on creating robust ‘communities’ that offer work-life-entertainment balance, as opposed to developing single buildings. Sunil believes that creating affordable and desirable communities, in locations, and with amenities, that are attractive to the new buyer profile, will serve Dubai well in further stabilising prices and augmenting demand.