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Dubai is the Middle East’s equivalent to Hong Kong and relies less on oil production compared to many neighboring countries. It’s been a hot-spot for foreign investors and seen a great growth in the past decades.
If you plan to buy real estate in Dubai, it’s important that you understand how healthy the market is and what you can expect in 2019.
In this article, I explain where Dubai’s real estate market stands right now, present data and analysis from previous years, and share my predictions for 2019.
Dubai’s real estate market in 2017 & 2018: A throwback
Before we try to forecast Dubai’s real estate market performance in 2019, it’s important that you understand how the market has performed the past years.
The market has had a turbulent time and some of its worst years in 2015 – 2016, when real estate prices declined much. Thus, the market has been in a recovery mode in 2017 – 2018.
Still, prices and rents didn’t fall as much during these 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 for sure. The main reason behind the decline is that the market has became one of the hottest in the past two decades. In 2004-2006, this small city had 30,000 cranes, equaling to 25% of all cranes in the world, which speaks for itself.
Other reasons behind the decline in Dubai’s real estate prices
So, we know that there’s been a price correction in the past years due to a strong upward trend the past decades. Below I’ve listed other notable reasons why the market has continued downwards for around three years.
1. Drop in oil prices
The UAE economy and real estate market suffered hard from the drop in oil prices in 2014.
Even if oil exports only contributes to 5% of the economy, it’s an important contributor to the economy’s overall performance. Oil is the primary export of UAE, the drop in oil prices impacted government spending.
2. A strong performing currency (AED)
In the past years, the UAE Dirham (AED) gained against major regional currencies and some international currencies. The strong Dirham made it more expensive for investors from countries like India, China, Pakistan, and UK, to buy real estate in Dubai.
Indians and Pakistanis became the 2nd and 3rd biggest investors in Dubai’s real estate market in 2017. From January to November 2018, the Indian- and Pakistani Rupee devalued by around 14% and 17% respectively, reducing the purchasing power.
We’ve seen a significant decline in estate transactions during the first three quarters of 2018.
3. Dubai’s real estate market lacks demand and has an oversupply of property
In the past years, property developers have focused on high-end and luxury residential properties. Due to the lack in demand from wealthy investors, developers now focus more on affordable residential units.
Areas like Downtown Dubai are worst affected by the oversupply. According to market reports by JLL and Savills, oversupply will remain a major problem even in 2019.
4. Mortgage cap introduced as of 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.
Statistics for Dubai’s property market in 2018
The data for the first three quarters of 2018 are not promising. The number of real estate transactions has declined compared to 2017.
For example, 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.
On top of that, the average residential prices in the first quarter of 2018 was 7.2% lower compared to 2017, according to Savills.
The most popular areas were investors bought real estate in 2018
The three most popular areas in the 1st half of 2018 were:
- Business Bay with 1,934 transactions
- Dubai Marina with 1,445 transactions
- Al Merkadh with 1,262 transactions
The office sector in 2018
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.
During the second quarter of 2017, vacancy rates decreased by “only” 7%. With increasing vacancy rates, we also see an increased supply of office space, that will continue throughout 2019.
Other interesting data about Dubai’s real estate market in 2018
Below I’ve included additional information from reports covering Q2-Q3 2018 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 a 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
How will Dubai’s real estate market perform in 2019?
Dubai’s property market will most likely remain weak and in a recovery mode until 2020. Many local experts believe that the prices will hit the bottom in 2019 or 2020, mainly due to a further increase in supply and with a weak demand.
According to S&P Global Ratings, real estate prices will decrease by additionally 10 – 15% to 2020.
However, there are plenty of positive signs that indicate fast recovery and positive growth in the next few years as well:
- UAE economy is stabilizing as oil prices start to rise again. With the recent sanctions on Iran, the oil prices are expected to rise further and can significantly improve Dubai’s real estate market, as the overall economy grows
- With the caps on borrowing and loan payments, the market turns into a more mature market
- There’s still demand among foreign buyers, mostly from India, Saudi Arabia, UK, and Pakistan, but still not as strong as in the past. We also see an increased interest among Chinese investors. Chinese investors climbed to a 6th spot in the first half of 2018, compared to 8th in 2016
In addition to above, 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 cutting costs for investors.
Developers shift from high-end projects to affordable property
Since 2017, developers have been shifting from building high-end luxury developments to more affordable properties, to lure more overseas investors.
You can find many developers that offer so called multi-layer payment plans. Some even allow buyers to pay 60% of the purchase price after completion.
The goal here 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
UAE recently announced a 10-year residency visa for investors, as well as offering 100% foreign ownership of UAE-based companies.
The 10-year residency visa is also valid for specialists like engineers and doctors, as well as top students.
This may increase business activity and the demand for property in the coming years.
Oversupply of real estate is still a challenge
One of the biggest reasons why prices and rents have decreased much is due to the oversupply of real estate.
The problem will remain in 2019 as Savills reported that 31,457 new apartments are planned in 2018, and further 40,370 new apartments in 2019.
The Dubai property market will remain in a weak recovery mode in 2019 and most probably start improving after 2020.
The market still faces several challenges that continue to exert a downward pressure. Some of the main issues can be pointed to oversupply, a fading demand, and a stronger local currency (AED) making Dubai more expensive for investors mainly from India, Pakistan, and the UK.
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.
For those who want to invest in Dubai property, my recommendation is to wait for one or two years as the prices will further decline in 2019 and 2020 most likely.