Before 2014 the property market used to be very expensive, with fewer unit options and hardly any attractive payment plans. Fast forward to today and the market gives a great opportunity for tenants to rethink their strategy and invest in real estate or become owners for virtually the same cost.
There are plenty of reasons to be cheerful about Dubai property such as a positive growth in real estate transactions in February 2019. However, regardless of how attractive the market may seem, investors and end users should do their due diligence before buying.
More: Special report 2018: Dubai real estate investment guide and tips
In this article we’d like to address three of the most common misconceptions about Dubai’s real estate market: oversupply, recession and property bubble.
1. Oversupply
The immigration data shows that the population of Dubai has reached the three-million mark and is expected to double by 2027 and yet we keep hearing about these oversupply fears.
The analysts quote the number of buildings under construction and the projected handover time, compare it with past year’s supply, and lo and behold, revert to the “property market is heating up” conclusion. Such micro-analysis tend to ignore basic macro-economic fundamentals, visionary leadership and pioneering spirit of Dubai.
Investors and businesses have every confidence in the diversified growth of Dubai’s economy that is driven by foreign investments in several core sectors and further underpinned by infrastructure investments in the preparations for Expo 2020.
The tourism, education and private sectors are another key drivers for the property market. Dubai tourism, education, economy and land department statistics show consistent growth in the number of residents, students and tourists that invest in property and business.
With over ten per cent population growth rate, Dubai is among fastest growing cities in the world. In addition to that, the long-term visas for business professionals and retirees property investors as well as a total foreign ownership of onshore companies cement the population growth rate ambitions of Dubai.
If anything, Dubai’s property market could be facing undersupply as soon as this year, considering a ten per cent population growth, healthy housing demand from buyers and investors and high volume of recent real estate deals, as well as project completion dates and project delays that nearly half of developers have experienced.
2. Recession
According to the school curriculum, it is all about supply and demand right? If there’s no oversupply, then almost by definition it is to do with the recession and falling demand.
If we look through any city and its communities, they are largely defined by the real estate — its neighbourhoods, shops and residents. Each geographical segment — whether a country, city or neighbourhood — has its own identity. That character also transforms with time and development. Due to rapid development and expansion, Dubai probably has the fastest changing identity when it comes to its communities.
If you drive through the city, which we all do, as developers, you might experience the change time has brought on and perhaps it will help you see why residents and businesses are moving no new locations. That is especially true for some of the most popular expat communities of the past pre-freehold era. We refer of course to the bustling areas of Satwa, Mankhool, Bur Dubai and Karama were the melting pots.
The hub of the mid-income population, it contained every possible convenience for residents and their day-to-day living. Everyone who migrated before 2005 has witnessed and benefited from what we now call “old Dubai” and will have a flashback of all the names and beautiful memories from the past such as long restaurant queues and businesses booming in Dubai’s most thriving neighbourhoods of the time.
However, the days of long queues are long gone and both businesses and residents that experience that same phenomena in their community instinctively create a connection to the falling oil prices narrative and economic slowdown even after the oil prices have recovered.
Nowadays some areas of Al Barsha resemble those of Bur Dubai back in the day. People move to new places, period. It’s just business. That’s all it is. You can see that by how many moving and storage franchises have opened up in recent years: the movers market is booming.
New Dubai is a huge opportunity for businesses. Especially the high-rise communities that offer a higher population density per square kilometre. No wonder some sky scrapers have dozens of restaurants.
More: Here’s why it’s the right time to relocate your family and business to Dubai
3. Property bubble
People really cannot seem to come to an agreement over the market situation here in Dubai, are we experiencing an economic bubble or recession? One may lead to another but it can’t be both at the same time and yet we keep hearing both arguments everyday.
If one considers the capitalisation rate and return on real estate investment in the form of rental yields and capital gains, they will find that not only Dubai properties are adequately priced but also why developers are cashing in on the increased investment spendings.
To correct a terminological inexactitudes made by empty suits, Dubai real estate market cannot be described with a rapid increase in housing prices and thus it cannot be at risk of a property bubble. Real estate investors around the world flock to Dubai precisely because it shows no sign of it. In fact, Dubai is becoming more affordable every year.
Property bubble is a real risk in North America (Toronto, Vancouver, Los Angeles, New York, and Boston), Europe (Munich, Amsterdam, London, Stockholm, Paris, Frankfurt, Zurich, Geneva, and Milan) and not so much in Asia (with most vulnerable being Hong Kong and Singapore) and Sydney in Australia. The UAE on the other hand has risen 29 spots in the affordability rankings of the latest Bloomberg Global City Housing Cost Index.
If anything, Dubai is undervalued. It has the world’s highest rent prices and one of the lowest rental income taxes. The government is investing heavily in infrastructure. It is safe and popular for business, education and tourism, and it offers liquid real estate investments since property transactions can be done in a single day.