It was a buyer's market for UAE real estate in 2018

Visa reforms and proposed regulations improve buyer sentiment

Dubai's skyline

Dubai's skyline

Getty Images/CaoWei

It was predominantly a buyer's market across the UAE this year as residential properties became more affordable. This was primarily because of the inventory that was handed over, which weighed on both house sales prices and rents.

Over 19,700 units have been delivered year to date, according to the consultancy Core. Prominent deliveries include Bluewaters Residences, Damac Heights in Dubai Marina and multiple projects in Nshama Townsquare and Akoya (Damac Hills).

The UAE also announced landmark visa reforms which will benefit the property industry. Starting next year, expats in the UAE aged 55 or over will be eligible to secure a five-year retirement visa, if they meet certain requirements, including investing in properties worth at least Dh2 million, or have at least Dh1 million in savings or an active income of more than Dh20,000 monthly. Also, investors in a property worth Dh5 million or more will be granted a 5-year residence visa.

"New visa regulations for retired expats and skilled workforce are among a number of ongoing measures to improve investor confidence and sentiment. These residency law regulations are also expected to positively impact the UAE property sector over the coming years, bringing a boost to demand by way of attracting and retaining expats," said Robert Thomas, associate director, residential at Core.

2018 was a good year for Dubai's secondary property market. While residential off-plan sales have been low, dropping by 32 per cent compared to 2017, there has been a rise in transactional activity in the ready space.

"The reduction of off-plan launches this year in comparison to 2017 has played a huge part in shaping the real estate sector in 2018. 2017 saw developers launch projects with very attractive price plans and incentives. However, it is not sustainable to do this year on year. The secondary market saw very little change since 2017 and has stayed consistent throughout the year," said Lewis Allsopp, CEO of Allsopp & Allsopp.

However, according to consultancy ValuStrat, established locations such as Downtown Dubai and Business Bay saw 85 per cent of investments being off-plan. "This came as no surprise as off-plan projects with competitive payment plans were preferred by purchasers as the cost of bank borrowing saw four increases during 2018. No change was seen to existing mortgage cap loan-to-value ratios," explained a ValuStrat report.

Key proposed regulations include developers to reach the 50 per cent completion mark or have 50 per cent of the total construction cost in an escrow account before being able to sell off-plan projects. This regulation safeguards buyers' interest. Another key milestone for Dubai's real estate market came from the Central Bank of the UAE in November 2018. Banks in Dubai were previously allowed to give 20 per cent of their portfolio to real estate but now the limit has been uncapped, allowing banks to invest more money in real estate to stimulate the market.

"We're now witnessing a market correction as property prices adjust to the increased supply. This benefits consumers who may have previously aspired to own a property but were priced out, and we're happy to see long-time UAE residents begin to invest and buy properties as an alternative to renting. Also, government initiatives such as longer visas and the diminishing restrictions on foreign ownership are attracting foreign direct investments and long-term residency," said Niall McLoughlin, SVP at Damac Properties.

Recent real estate reforms are having a great impact on the UAE's global perception. "A reform-oriented government continues to be the main driver of the sector's growth. We saw continued trust from foreign and local investors, during times when consumer confidence around the world has been on a decline," the senior Damac Properties executive added.

Overall residential capital values for existing freehold properties declined 11 per cent annually and are 22 per cent below their 2014 peaks, according to the ValuStrat report. However, not all areas performed equally. ValuStrat data shows that the highest annual declines of more than 15 per cent came from Business Bay, International City and Jumeirah Islands, locations with less than 6 per cent declines were villas in Palm Jumeirah, Emirates Hills and Al Furjan.

Dubai became more affordable in 2018. For Dh300,000, buyers could opt for a studio in Dubai Production City, for less than half a million dirhams, purchasers could secure a one-bedroom apartment in International City.

Asking rents were down 8.6 per cent on an annual basis as many landlords worked to maintain occupancy levels with rent reductions and easier payment plans. According to ValuStrat, examples of affordable rents include studios in International City for Dh20,000 and one-beds for Dh30,000.

The rental market has become a tenants' market. In order to maintain occupancy, landlords are more flexible when it comes to payment terms. They have moved from accepting only one cheque to accepting up to 12 cheques. Rents, on average, are expected to stabilise in the next 12 months.

"One must understand that the macro-induced crunch on the consumers' purchasing power had prompted a fight for affordability in both the rental as well as the sales markets. This consequently led to much-needed attention on the affordable housing segment. This contributes to the economy in many ways. It directly boosts the retail, insurance and banking sector as more people continue to call Dubai their permanent home," said Atif Rahman, director and partner, Danube Properties.

An influx of new residential stock, some after delays of up to two years, was handed over. With many of these new homes targeted at the mid-affordable market, areas located along the E311 corridor such as International City, Dubai Silicon Oasis and Dubailand were most impacted. There was also a shift towards domestic end-users rather than investors.

"Developers have increasingly moved into home financing, offering innovative self-funded payment plans directly to their purchasers, outside of the traditional mortgage market. While such schemes have likely opened up home ownership in Dubai to a wider market, less stringent credit checks as compared to traditional bank mortgage applications, may represent some downside risk for future payment defaults. Such a scenario could possibly expose some developers who are dependent upon stage payments to fund project construction," the ValuStrat report warned.

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