Real estate has always been at the heart of Dubai’s economy. Unfortunately, the UAE real estate sector began to soften, significantly slowing down over the last few years, with analysts now expecting the coronavirus to further hamper sales and lower rental prices.
‘The economic contraction and its fiscal implications will be most acute in Dubai, where the economy is very reliant on tourism and transportation,’ said Lahlou Meksaoui, lead analyst at Moody’s.
According to Chestertons MENA, the Middle Eastern arm of Chestertons International, apartment prices fell by an average of 9.8% while villa prices saw a 7.1% drop, annually. The firm expects prices to further decline in the second half of 2020, a result of a subdued economy and a likely fall in the expatriate population.
Most UAE markets are still suffering from persistent imbalances as a result of excess supply, in part due to the flurry of construction in the run up to Expo 2020 and of slowing demand growth.
Dubai homebuilders face further market weakening as job losses and salary cuts curb local buyer demand for new properties and travel restrictions reduce international demand. As a result, Moody’s has projected a decline in residential prices for the next 12-18 months.
Contrary to this projection, Dubai-based property brokerage Allsopp and Allsopp reported a bounce back in the property market after movement restrictions were lifted.
‘As soon as the lockdown was lifted by the UAE government, clients registering their interest in properties came flooding in and the market started moving quickly,’ said CEO Lewis Allsopp.
‘The month of April saw our viewing numbers go from the thousands per month to being non-existent with restrictions of movement in the emirate which in turn impacted the number of transactions,’ he said. Like many businesses, Allsopp too offers virtual viewings and video conference calls to his clients.
Allsopp’s April figures reflect the situation the Dubai property market was in with regards to viewings and the lack of mobility in the market with buyers and tenants unable to move to new homes.
In May, the company saw a 31% rise in buyer registration from April showing buyer sentiment despite the pandemic. Allsopp also saw a 47% rise in mortgage agreements in May 2020 compared to May 2019.
In June, the firm saw a rise in both tenant and buyer registrations. Buyer registrations rose 136%, with transactions increasing 61% and mortgages surging 118% year-on-year.
‘The figures from June are outstanding with buyers entering the market in abundance,’ said Allsopp, citing higher loan-to-value ratios of 80% and mortgage incentives luring buyers to the market.
Masood Al Awar, CEO of Medallion Associates, a Dubai property investment advisory firm, feels this is not the time to take a step back.
‘In fact, this is the right opportunity to grow because whatever the cause may be, challenges will always be there, but seeing the best options in these situations enable investors and companies to gain the best position in the industry,’ he said.
Investors can benefit from low mortgage interest rates, higher loan to value, reduced service charges and attractive valuations in their investment. In the Middle East, the sentiment and behavior have already shifted.
‘We had always witnessed a strong conviction from our Middle Eastern clients in the global real estate opportunities,’ said Yves Mirabaud, board chairman of Mirabaud Middle East and senior managing partner of Mirabaud.
‘Especially during today’s global economic challenges, our clients are looking to acquire trophy assets in major cities and prime locations in the world that can secure a long-term steady income from a high-quality investment grade reputable tenant with fundamental lease conditions,’ he said.
The private bank has taken a dynamic approach by adopting a successful income generating strategy in their fixed income offering and real estate acquisition opportunities that secure steady long-term income for their clients ‘as long as private equity niche themes that involves entrepreneurs from the industry to lead towards successful turnaround,’ Mirabaud said.
‘We cannot but mention the safe heaven commodity that is gold as well. For equity bias, defensive sectors, thematic allocation and cyclical stock remain a good approach in current context.’