With Dubai’s residential real estate market softening for the sixth straight quarter, analysts are expecting a similar trend for the rest of the year, with an upturn not predicted until 2017.
However, luxury residential properties have fared better than the market as a whole and are predicted to lead the recovery. Here, Dana Salbak, associate partner and head of MENA (Middle East/North Africa) research for real estate consultancy Knight Frank, describes her market outlook for the remainder of 2016 and beyond.
What is Knight Frank's view of the market so far this year, and what predictions, if any, are you making for the remainder of 2016?
The residential market in Dubai is expected to continue softening over the second half of the year. While it’s difficult to predict when the next growth cycle will be, we expect the residential market to level out by the end of 2016 before seeing gradual recovery in 2017. We expect prime residential properties will continue to outperform the overall residential market average in the short to medium term.
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What gives luxury residential properties that edge?
Prime properties are generally undersupplied in the market, which explains the resilience of their prices. Also, demand for these properties is not as volatile, considering it is a niche market and investors are willing to pay a premium to be owners of prime property. Many use these as their primary homes, but others as secondary homes, particularly other Gulf Cooperation Council nationals from Saudi Arabia and Kuwait.
What are the factors leading to your prediction of a turnaround in 2017?
While the market is exposed to global volatilities, continued government spending on infrastructure projects leading to Expo 2020—the first world exposition ever to be held in the Middle East, Africa and South Asia region—in addition to expansion of existing infrastructure such as Dubai Airports and Emirates Airlines, will continue to drive the market forward. This is in addition to the availability of Grade A investment products, which are likely to attract investors. Also, the improvement in market transparency and development of rules and regulations, such as mortgage caps and higher property transfer fees, are all expected to propel the market into another growth cycle in the gear-up to Expo 2020.
What other important issues are affecting the high-end residential real estate market in Dubai?
The outlook for the Emirates in general and the real estate sector in particular depends on a number of global and regional fundamentals. Further volatility in oil prices, the U.S. presidential elections in November 2016 and ongoing geopolitical tensions are likely to impact the behavior of currencies, investor sentiment and, consequently, the demand for property.
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Who's buying in Dubai right now? What part of the world or nations are the most interested potential buyers coming from?
Over the first half of 2016, 149 nationalities bought property in Dubai. If split regionally, UAE buyers top the list of investors, followed by Saudi Arabians, who own property in the UAE as a second home. Looking internationally, Indian buyers came in the top of this investor field, while the British were second. The UAE has historic business ties with both India and Britain, which explains why a lot of the capital inflows come from those two nations.
Are buyers from particular countries pulling back and holding onto their money rather than purchasing property?
The list of top buyers has been consistent, with Indians, British and Pakistanis leading foreign investors. Russians were also always keen buyers of property in Dubai. However, interest has slowed down on the back of the devaluation of the ruble versus the dollar. Having said that, they’re still the sixth-largest buyer nationality in Dubai and remain significant investors in the long run.
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Is the Brexit vote having a noticeable impact on certain buyers?
Statistics from the Dubai Land Department show that Britons invested US$1 billion in Dubai property in H1 2016 versus US$1.3 billion in H1 2015. While these numbers imply that the value of investments might slow down following the Brexit vote (as they have), it’s still quite substantial, and we don’t foresee this dropping drastically.
The commercial ties between the UAE and the U.K. go back long before property was established as a major industry in the UAE. Many families who have lived in the UAE in the 1960s and ‘70s continue to do so and have raised their families here, who have now in turn come back to choose Dubai as a home for them or a second home, and have invested accordingly.
Is the price of oil having a noticeable impact on certain buyers?
The volatility in oil prices had an overall impact on investor sentiment, which was reflected in the 12.4% drop in the value of transactions in H1 2016 versus H1 2015. However, in terms of specific nationalities impacted, the list of top buyers remains consistent with historic rankings.
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