The lure of Dubai real estate should be pretty strong to any investor who aims to "buy low."
The city’s housing prices have been in freefall since the price of oil crashed in 2014, for a total decline of roughly 20% over the past four years. It’s impossible to predict the exact bottom of a housing cycle, but most real estate analysts agree that prices will stabilize ahead of the 2020 World Expo, an international fair expected to bring around 25 million visitors to Dubai and provide at least short-term stimulus to the real estate market.
"This is certainly good news for potential purchasers, who currently have a wide selection of available properties from which to choose," said Craig Plumb, head of research for MENA at real estate firm JLL.
"Those with an immediate need may be well advised to enter the market now, as it is notoriously difficult to predict the precise bottom of any cycle," Mr. Plumb added.
Dubai now offers a metropolitan, seaside lifestyle where a $1 million investment will get you a two-bedroom apartment with staff quarters and views over the Burj Khalifa; a 2,000-square-foot unit with private beach access or a five-bedroom villa on an equestrian estate. For full- or part-time residents—or anyone with a long-term stake in the city—now is as good a time to buy as any.
At worst, prices will decline another 5% over the next 12 months, and should hit rock bottom in 2019 before the World Expo re-energizes sentiment, according to JLL’s latest predictions. The fair kicks off in October 2020, in exactly two years.
It’s really the latter part of the old maxim "buy low, sell high" that has Dubai analysts divided. A fleeting bump from the World Expo would leave investors back where they started when the fair ends in April 2021.
"A harder question is if the market will decline again in 2021, with the answer to this depending on how successful the city is in converting the short-term stimulus provided by the Expo into longer-term demand for real estate," Mr. Plumb said.
Massive Push for New Buyers
Both developers and the government have been in overdrive to make property ownership more attractive to foreign investors and the city’s expats—who come from all over the world and make up around 80% of the total population.
Dubai’s build up in housing supply is 16 years in the making, since the government opened up property ownership to non-Emiratis for the first time in the early 2002s—a decision that triggered a boom in development.
In the years leading up to the 2014 oil crash, frenzied speculative development and investment drove annual price growth to an astronomical peak of 37.5%, according to figures from Reidin.com. The collapse in oil prices tightened the purse strings of Emiratis and their oil-rich neighbors in Gulf, the city’s most active foreign buyers. An oversupply of housing stock has hounded the market ever since.
Since then, Dubai has worked aggressively to diversify away from the volatile commodity toward sectors like luxury tourism, aviation, finance and IT. Petroleum and natural gas now account for around 5% of Dubai’s gross domestic product, according to government statistics. Oil once made up about half of the emirate’s GDP at peak production in the early 1990s.
This year, lawmakers in the U.A.E. capital of Abu Dhabi began rolling out a series of policy reforms aimed at encouraging some of its millions of foreign residents to put down permanent roots, buy homes and open businesses in Dubai.
The forthcoming policies will offer affluent retirees long-term visas for the first time; give 10-year visas to property investors, and science, medical, and technical professionals; and will allow 100% foreign ownership in Dubai-based businesses, a major shift from a system whereby Emiratis had to own at least 51% of most companies.
Developers have also homed in on the long-term expat population, laying the groundwork for a "more stable market, a more mature market," said Manika Dhama, associate partner of strategic consulting and research at Cavendish Maxwell.
"Dubai has historically been an investment-led market rather than an owner-occupier market. But over the last 12 months, a lot of developers have been more focused on the end-user occupier," Ms. Dhama said.
Some developers have reduced down payment requirements to make homeownership more realistic to middle-income residents. Even Emaar, a mega-developer responsible for some of the city’s most luxurious and iconic buildings—including the Burj Khalifa—is offering post-move in payment plans.
Other developers are testing the waters with rent-to-buy schemes.
All of these efforts from lawmakers and builders could help capture the momentum from the World Expo and ease the city’s supply woes. But the timeline for a return to price growth varies from Ms. Dhama’s prediction of late 2019 to as long as 2023, a estimation from real estate firm Chestertons.
Whichever the case, Ms. Dhama said, "You’ve got to be long on this city." Price appreciation will never hit the double-digit gains of the pre-oil bust years, she added.
Areas Where It’s Smartest to Buy
For the safest buy, Ms. Dhama advises people to focus on areas of the city where prices have already shown some resilience. Dubai Marina, the Palm Jumeirah and Downtown Dubai offer thriving communities with public infrastructure, high occupancy levels and neighborhood amenities.
"There are pockets where it’s very marginal price declines now," she said.
Dubai Marina, a touristic waterfront strip popular among young professionals, led the city for the most apartment resales in the third quarter of 2018, according to Property Monitor, a site from Cavendish Maxwell. Emirates Hills, a sprawling golf community dotted with bespoke mega-mansions that are home to the city’s elite, saw the highest number of villa sales during the same timeframe.
Buyers should also gravitate toward leading builders, who are better funded and tend to produce higher-quality product. "Developments by Emaar and Select Group would tend to hold prices better compared to inferior stock," Ms. Dhama said.
"Where you’re sitting right now," she added, "is as good enough a time as ever to start looking."
Source: Mansion Global