Revealed: Dubai’s capital value rises, bears implications for real estate

Leading world cities are putting the pandemic behind them, if their capital value growth is anything to go by. According to Savills Prime Index: World Cities Capital Values⁽¹⁾, across the 30 leading cities, capital values grew by an average of 3.9% over the six months to June 2021 — the highest growth rate since December 2016.

The record half-yearly growth is preceded by periods of low and negative capital value growth. Experts believe that the dramatic increase in capital value in H1 2021 is powered by a confluence of factors, including record-low-interest rates, improved buyer confidence, increased transactions at higher price points, and economic stimulus packages. The same period also saw a few cities’ capital values drop, indicating disparities in the effectiveness and implementation of policies.

The “Great Reset” in global real estate

As expected, Chinese cities topped the charts due to a head start in post-pandemic recovery. Shanghai leads the group with a 13.7% growth in capital values in H1 2021, followed by Hangzhou, Shenzhen, and Guangzhou featuring in the top ten. These property markets witnessed healthy domestic and foreign capital inflows, as investors hedging in real estate assets rallied behind them.

American cities like Los Angeles and Miami, which boast spacious residential communities, were next only to Chinese cities in capital value growth. Their growth has come at the expense of cities like New York, which were reeling under the pandemic pressure. New York saw -3% capital growth, owed in part to both public health crisis and oversupply.

Furthermore, the group includes cities that neither got a head start in post-pandemic recovery nor had external factors influence the market greatly, but had intrinsic characteristics come to their aid. Cities like Moscow, Sydney, Lisbon, Sydney, Seoul, Berlin, Singapore, and most importantly, Dubai witnessed a steady 3-5% capital value growth.

Dubai: Rising to the challenge

With a 4.2% increase in capital values in H1 2021, Dubai has risen to the unprecedented challenges posed by the pandemic. For Dubai, the growth was fueled by proactive crisis management and real estate-centric policies that were put in place years ago. Unlike others in the top ten, Dubai is a relatively new market that doesn’t enjoy aggregate domestic demand; its demand is driven by expats and foreign investors, both individual and institutional. It is under this scenario that Dubai’s growth rate is particularly noteworthy.

Additionally, critical interventions in the financial ecosystem have paid dividends. Slash in interest rate by 50 basis points, increase in LTV ratio for first-time buyers, allowing banks a greater exposure to real estate, etc. are among the notable initiatives. The result was instantaneous, with mortgage transactions doubling in Dubai⁽²⁾ in H1 2021.

The low-interest environment was accompanied by timely relaxations to personal laws and 100% ownership rights, which have played into foreign investors’ upbeat sentiment. Considering these are structural trends that are set to remain, they could induce buoyancy in property markets and keep the prices stable long after Expo and stimulus tailwinds subside. Supporting this notion is the rental value statistics by Savills, wherein Dubai ranks third in rental yields in H1 2021, with nearly 5%

growth. This is of great consequence, taking into account the last six years of negative rental growth in Dubai.

This growth can be attributed to the collective, global shift to remote working, which enabled professionals to work from anywhere. As the UAE launched the visa program for foreign remote working professionals⁽³⁾, many professionals turned towards the nation. Between the short-term boost from the Expo, and long-term economic diversification initiatives, the UAE is making a strong case to emerge as the global leader in real estate.