Real estate snapshot: highs and lows of the past decade
It has been a decade since the property market faced its toughest challenges beginning in late 2008. The Dubai real estate market has since undergone a major transformation as it continues to mature and develop in line with the city’s growth.
We spoke to five property market experts to understand the fundamental differences between 2008 and today, the major challenges that the real estate industry had to overcome and continue to grapple with, as well as the industry’s biggest achievements to date.
Robust regulatory framework
It is now nearly 10 years since the bursting of the property bubble in late 2008 to 2009. Although the effects of this were obviously very serious at the time, it has undoubtedly resulted in a more mature and sustainable real estate market, with a more robust legal and regulatory framework now in place.
A major highlight of the past 10 years is the growth of the Real Estate Regulatory Agency [Rera], which has achieved a great deal since its inception in 2007 in developing a regulatory framework that seeks to protect real estate investors and end users and restore confidence in the market.
There have also been some welcome consumer protection measures introduced through legislation, most importantly the introduction of mandatory escrow accounts for developers selling off-plan projects and the introduction of the interim real estate register [Oqood].
Significant legislation has also been introduced to clarify the position between developers and off-plan investors in the event of default by either party. Rera has also assumed powers to take action to cancel development projects with clear guidelines in place regarding the liquidation process.
In terms of landlord and tenant matters, in 2013 a rental index was introduced. The Ejari system has also developed in the last 10 years, and a standard tenancy contract was introduced last year. Although these are positive in terms of protecting the rights and security of tenants, a new rent law that distinguishes between leases of residential and commercial property has been mooted and would be a welcome addition to Dubai’s real estate laws.
After 2008, the major challenge has been restoring investor confidence in the market. However, Dubai has introduced certain measures to ensure that the market does not overheat again like it did prior to 2008, and these have been successful.
We believe that all of the steps that have been taken over the last 10 years have built a solid foundation on which to take the real estate sector in Dubai to the next level over the coming years, with interest from institutional investors increasing.
Ian Arnott, senior associate, Al Tamimi & Company
Real estate transparency
It has been fantastic to witness the growth of the Dubai real estate market first hand. Being such a young real estate market, one of Dubai’s biggest achievements is how it reacted to the downturn following 2008.
Regulating a market from scratch is a huge challenge. I’m from the UK, where hundreds of years have allowed the property market to grow organically over time, along with its laws, regulations and practices. Dubai is evolving at a much quicker rate so huge credit has to be paid to the Dubai Land Department [DLD] and Rera for their efforts.
Dubai has also faced challenges with regards to real estate transparency, which is now being addressed with the implementation of form A, the standard contract between seller and broker. The DLD is also working on providing up-to-date transaction information to the market, which again is a big step in increasing market transparency.
Today, owners understand that they have to sign paperwork to list their property and they appreciate the advantages of using only one broker. Property portals have evolved making clients’ searches easier, while the listings, sales and rental paperwork are all unified so a client knows what to expect to sign. I could really go on here — the market has developed so much and will continue to do so as the city evolves.
Lewis Allsopp, CEO, Allsopp & Allsopp Real Estate Broker
Youth-driven investments
The major achievements of the Dubai real estate market between 2008 and today can be classified into three exclusive trends: market maturity, regulatory framework and youth-driven investments. With regards to market maturity, we can safely say that the Dubai real estate market is today less speculative and more fundamentally driven. This can be observed in the number of investors who are now making decisions through analysing annual returns and the potential for capital gains. Moreover, buyers are also eying real estate investments as alternative homes, further increasing end-user demand. At the same time, the decline in the number of speculative investors has meant that the market is now more stable, sustainable and attractive due to its decreased uncertainty.
Another important achievement is the evolution of Rera’s regulations. In fact, Rera has done a tremendous job of enacting regulations that stabilise the market. For some time now, these regulations have been acting as a balancing force between the interests of both investors and developers. This has contributed to a more equitable investment ecosystem.
Finally, the younger inhabitants now perceive Dubai as a long-term home, and more young adults are prepared to invest in and own property today than ever before. This certainly has a positive impact on the market as it avails more liquidity. As people settle down for a longer term and own more property, their sense of stability increases, which increases their confidence as consumers. This translates into a higher propensity to consume, which has positive spillover effects on the whole economy.
Ahmed Bin Ghatti Al Jbori, CFO and head of investments, Binghatti Developers
New demand drivers
In its first price cycle between 2002 and 2012, the Dubai real estate market experienced rapid price increases, followed by a market decline, which affected many domestic and international investors. In the second price cycle between 2012 and today, rapid price increases, mostly due to the World Expo win, have been followed by granular-level price correction.
Today, the Dubai real estate market is more mature. Regulation changes such as the increase in real estate registration fees and the mortgage cap rule were two main factors that helped the market to reduce the volatility in the price changes.
Going forward, new avenues of tourism, such as theme parks, infrastructure and developments in the run-up to Expo 2020 will be the key demand drivers for the city’s population and indirectly for home ownership.
Even though rental yields have declined in the last couple of years, the Dubai real estate market is considered as one of the most attractive and reliable markets in the world, owing to its economic and political stability.
Ozhan Kalkan, country manager UAE, Reidi
Emerging market trends
Dubai’s real estate market has come a long way since international freehold ownership was first introduced in 2002. The emirate has not only managed to return to growth after the impact of downturn [post 2008], but has evolved despite ongoing headwinds worldwide.
Significant progress has been made to improve transparency over the years, however, there is still room for growth and the government is actively pursuing initiatives to further strengthen the regulatory framework.
Although we are unlikely to experience market speculation to the extent seen leading up to the real estate peak in 2008, market sentiment is easily swayed by positive/negative internal or external events. However, we believe extreme fluctuations are expected to be kept at bay by the improved regulatory environment, i.e. mortgage cap, increased DLD fee, terms in the sales contract stipulating that the unit cannot be sold until a certain amount has been paid, etc.
Other potential market challenges include increasing supply, the Qatar diplomatic crisis, the collapse in oil prices and job cuts and/or reductions in staff allowances.
The full impact of the introduction of the 5 per cent value-added tax is yet to be seen. We do, however, believe it will affect market sentiment in the short term, particularly in the commercial sector, but will ultimately boost the economy through increased government spending and hiring.
Today there is increased transparency in the market, a more diversified economy, lower dependency on oil and an increased number of real estate investment trusts [REITs]. We also noted the emergence of a number of new real estate market trends in Dubai, most of which could be applied to the UAE in general, such as a shift in sales demand from high-end luxury to affordable mid-market properties; price point [rate per square foot] driving demand, resulting in smaller units being launched; increase in end-user and first-time buyers; and a tenant/investor-driven market.”
John Stevens, managing director, Asteco
Editor's Note: This article was originally published in Gulf News on Wednesday March 28th, 2018 http://bit.ly/GulfNews_RealEstate