Dubai is the Middle East’s equivalent to Hong Kong and relies less on oil production compared to neighboring countries. It’s been a hot-spot for overseas investors and the real estate market grew remarkably throughout the 2000’s.
Having said that, Dubai’s property market has not performed that well in the past years. There are plenty of reasons for this.
If you plan to buy real estate in Dubai, you must know how healthy the market is and what you can expect for the coming year. In this article, we review how the market has behaved in previous years, presenting data and statistics, and share what we expect for 2020.
Dubai’s Property Market in Previous Years
The market has been turbulent since mid-2013 and had some of its worst years in 2015 – 2016, when real estate prices declined significantly. The market has been in a recovery mode in 2017 – 2018.
Prices and rents didn’t fall as much during these years compared to previous years. For example, the average sales price decreased by around 5.6% in 2017 according to Savills, while the average rents fell by 7%.
We can call it a price correction. The main reason behind the decline is; an over-supply of property, an inflated market, and a weak economy. In 2004-2006, this small city had 30,000 cranes, equal to 25% of all cranes in the world, which I believe is self-explanatory.
Falling Oil Prices
UAE’s economy and its real estate markets have suffered from a drop in oil prices, particularly in 2014 and 2015.
Even if oil ‘only’ contributes to 5% of Dubai’s economy, it has a great impact on the economy as a whole. Oil is the primary export product of the UAE and the drop in oil prices has indeed affected the market negatively.
A Strong Dirham
In the past years, the Emirati dirham (AED) gained against major regional currencies and some international currencies, making it more expensive to buy real estate for investors from India, China, Pakistan, and the UK, for example.
Indians and Pakistanis were the second and fourth biggest investors in Dubai respectively during the first nine months of 2018.
From January to November that same year, the Indian- and Pakistani Rupee weakened by around 14% and 17% respectively against the dirham, reducing the purchasing power among these nationalities.
We saw a significant decline in real estate transactions during the first three quarters of 2018. In October, we saw record-high sales volumes due to decreasing prices, which made property more attractive to local and foreign investors.
The Oversupply of Property
In the past years, property developers have focused on building high-end and luxury residential projects.
However, since we’ve seen a decreased interest and demand among wealthy investors, developers now focus more on affordable residential units.
Areas like Downtown Dubai are worst affected by the oversupply. Prices are now down 30% over the past five years and where the chronic oversupply is much to blame for.
Mortgage Cap Introduced in 2013
Many analysts working in Dubai’s real estate market claim that the mortgage cap is the biggest contributor to the price drop. After the mortgage cap was introduced in 2013, we saw an immediate decline in prices.
The government didn’t see any other way than to introduce a mortgage cap, to cool the strongly growing market. At the moment I’m writing this article, local Emiratis need to pay 20% in down payments, while the limit is set at 25% for expats and other foreigners.
As expats make up 89% of Dubai’s population, the mortgage cap affected a big part of the consumer market.
2018 & 2019 Statistics
The data for the first three quarters of 2018 were not promising. The number of real estate transactions declined much compared to 2017.
In the first nine months of 2018, the total number of transactions was 39,802 with a total value of AED 162 billion. In 2017, the number of transactions during the same period was 52,170 with a total value of AED 204 billion.
The average residential prices in the first quarter of 2018 was also 7.2% less than that of in the 1st quarter of 2017, according to Savills.
When it comes to locations, the three most popular areas in the first six months of 2018 were:
- Business Bay with 1,934 transactions
- Dubai Marina with 1,445 transactions
- Al Merkadh with 1,262 transactions
During the first eight months of 2019, the most popular areas were:
- Downtown Dubai with 2,034 transactions
- Dubai Hills with 1,771 transactions
- Jumeirah Village Circle with 1,323 transactions
- Business Bay with 1,275 transactions
- Dubai Creek Harbour with 1,214 transactions
The latest news for the office sector are not promising either as the vacancy rates increased by 10% in the second and third quarter of 2018.
Below I’ve included additional information from reports covering Q2-Q3 2018, written by JLL:
- In Q2 2018, there was a 5.5% decline in sales price for apartments and a 6.8% decline for villas, compared to 2017
- In Q2 2018, there was a 7.9% decline in rents for apartments and an 11.2% decline for villas
- In Q3 2018, there was a 7% decline in sales prices for apartments and an 8% decline for villas
- In Q3 2018, there was a 10% decline in rents for apartments and a 9% decline for villas
In 2019, we also saw major price drops as follows:
- Apartment prices fell by 16.5% when comparing Q3 2018 with Q3 2019
- Villa/townhouse prices declined by 15% in the third quarter of 2019
At the same time, rents have declined by double digits.
How will Dubai’s property market perform in 2020?
The Dubai property market will continue its downward trajectory and prices will most likely fall until 2021 or 2022. The economy is still weak and we see remaining issues with an over-supply of property.
In 2018, S&P Global Ratings informed that real estate prices will decrease by additionally 10% to 15% by 2020.
This is in line with statements from local analysts who say that we will see a reduction of 10% in 2019 and a reduction of 5% in 2020.
Slow Economic Growth
Dubai ‘s economy remains weak and it grew by as little as 1.94% in 2018. The growth will increase to around 3.8% in 2020 and later decrease to around 2.8% in 2021, according to the government.
Having said that, Dubai’s economy is extremely vulnerable to external factors and the global economy as a whole, including the ongoing trade war between the US and China.
According to a poll made by Reuters, the real estate market will continue to decline until 2022. Property is still considered fairly expensive, a reason why we see a correction in the market.
Dubai’s Real Estate Self Transaction (REST)
Worth mentioning is that the Dubai Land Department has announced that it will create a smart digital platform called Real Estate Self Transaction (REST) by 2020.
It aims to eliminate the need for paper documentation for both renting- and sales of property and to help cut costs for investors.
Developers Shift From High-End to Affordable Projects
Since 2017, developers have been shifting from building high-end luxury developments to more affordable properties. This trend will continue through 2020.
You can find many developers that now offer so-called multi-layer payment plans. Some even allow buyers to pay 60% of the purchase price after completion.
The goal is to turn renters into buyers and to create more demand from the medium income segment of the market.
10-Year Residency Visa for Investors and Specialists
In 2019, the UAE government announced a 10-year residency visa for investors, as well as offering 100% foreign ownership of UAE-based companies.
The 10-years residency visa is also valid for specialists like engineers, doctors, and top students.
This may increase business activity and the demand for property in the coming years.
The Dubai property market will most likely continue to decline through 2020. The market still faces several challenges that continue to exert downward pressure.
Some of the main issues can be pointed to oversupply, a fading demand, a weak economy, and a strong local currency (AED). This makes Dubai property more expensive for investors who come from India, Pakistan, and the UK, for example.
On the other hand, there are a few positive signs as well, like the increase in oil prices, a rising interest among Chinese investors, recent policy changes to attract more investments and talents, and developers shifting their focus to the more affordable market segment.
Having said that, for those who want to invest in Dubai property, my recommendation is to look elsewhere as there are plenty of better options around Asia.