We are sometimes faced with the question of whether it is the right time to invest in real estate, particularly in a market where capital values are on a decline, assuming of course that sufficient funds to purchase a property are already in hand.
The Dubai real estate market is now likely moving towards the end of a correction phase, with many analysts agreeing that the market cycle may be nearing the bottom within the next 18 months or so. But no one can be certain.
For ready properties, it may make sense to wait for the market to bottom out, however, this may not be the wisest decision simply because the well-located, best view, desirable property that is listed for sale today, may no longer be available tomorrow, simply because it can be purchased by a savvy investor who is able to negotiate the price downwards to attempt to mitigate further price declines. Same goes for off-plan properties, as attractive payment plans may no longer be available once the market stabilises.
Since 2010, cash-based sales transactions for ready homes per quarter averaged 2,962. The peak for the same period was registered during the fourth quarter of 2012 with 5,603 transactions, and the trough was recorded during the fourth quarter of 2014 with just 1,644 sales. The second half of last year there were 6,650 transactions or 2,513 home sales per quarter, and the first half of this year saw 5,364 transactions, an increased average of 3,325 per quarter, 12 per cent higher than the previous 10 year quarterly average. The fourth quarter of 2019 saw cash sales volume of ready homes growing 29.7 per cent annually.
Unlike ready to move in properties, documented data for off-plan sales, which are based on various payment plans put out by developers, began in 2015. Since then, the average number of off-plan sales was 4,224 per quarter, this peaked very recently, during the fourth quarter of 2019 with over 7,000 total sales, representing a record annual growth rate of 68.8 per cent.
Given the statistics above, we find that there's no shortage of residential properties being recently bought, and it seems that lower prices and easy payment plans do attract savvy investors who are probably in it for the long term.
But which type of investment is more preferred by purchasers, ready or off-plan? Judging from the last five years, the answer is clearly off-plan with 60 per cent-70 per cent of residential unit transactions. The last quarter of 2019, that share was 67 per cent. Noting that the average price per square foot for off-plan was Dh1,270 which is 27 per cent higher than the average for ready homes, as transacted ready homes were priced at Dh998 per square foot during the last three months.
Whether it's off-plan or ready property purchases, recent years have proved that there's no shortage of investments in Dubai's real estate market, and with a visibly growing trend of buying activity in light of declining prices as well as investor-friendly payment plans, time will tell, as it has been proven before, that this trend will continue for the medium term, followed by a market stabilisation and eventual recovery in the longer term.
Haider Tuaima is head of ValuStrat. Views expressed do not reflect newspaper's policy.
Copyright © 2019 Khaleej Times. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).