With over 21,700 homes delivered in 2018, the highest number of deliveries since 2011, sales prices are expected to remain under pressure in the foreseeable future.
"Sales prices will continue to drop in 2019, however the rate of decline is expected to slow towards the end of this year. It is important to note though that as rents are likely to fall more than sales prices, this needs to be factored into the investment calculations," reckoned John Stevens, managing director, Asteco Property Management.
The steady decline in sales prices for completed projects has increased affordability and opened the market to a wider investor pool and facilitated a rise in end-users and first-time buyers. The Dubai Land Department announced that there were 9,500 first-time buyers between January and August 2018.
"However, there are still challenges when it comes to loan-to-value ratios currently in place, which requires a 25 per cent down payment for expatriates, plus other fees. 2019 will follow a similar trend as in 2018 in light of regional and global economic headwinds, as well as the current and expected oversupply in the market. Developers and investors are likely to continue to adopt a wait-and-see approach until the economy recovers and market sentiment increases. The hype surrounding Expo 2020 and earmarked growth in investment/tourism leading up to it should allow for better real estate conditions in 2020 due to improved market sentiment," Stevens pointed out.
Transaction volumes in the ready sales market, both for cash and mortgage transactions, has seen a steady increase over the last three years. The average unit prices in the secondary sales market have also shown resilience.
"This indicates strength in the secondary market where offer and demand are finding an equilibrium and more buyers are opting for ready units instead of off-plan units as they look to either transition to ownership and save on rents or look for immediate rental yields," observed Robert Thomas, head of residential at Core.
Therefore, it is indeed a buyers' market with individual property owners and developers being very flexible. It is always difficult to pick the bottom of the market, so buying near the bottom makes sense, especially when there is plenty of choice and willing sellers. However, buying decision varies according to personal preferences, depending on whether the purchase is a move towards owning to live or as an investment and this factor also drives the intent and time to enter the market.
"Although we expect further softening in the sales market, it still makes sense for tenants with a long-term horizon of residing in Dubai to save on rental outflows and move towards ownership," suggested Thomas.
It is a good time to buy now if your investment horizon (or requirement for self-use) is medium- to long-term. There is a high risk associated with short-term investments as capital gains are unlikely given the projected supply.
"There are other factors that should be taken into consideration such as: If it is for self-use, the question to ask is: would a further drop in the sales price compensate for the money spent on rent or would the wait cost you more? If it is for investment purpose, will there be any better investment opportunities in the future? Just because we expect further reductions in sales prices does not mean the products offered going forward will be a better overall investment," Stevens explained.
Cash purchases generally offer the best discount, as opposed to deferred payment plans, which factor in the developer's cost by pricing the unit higher. The latter, however, opens the investor pool. Low down payments and flexible post-completion payment plans make off-plan properties more attractive to investors/end-users with limited up-front capital.
"Whether off-plan or established projects, it is important to do your due diligence - choose reputable developers with a good track record in terms of delivery [for off-plan], quality specifications, maintenance, etc.," warned Stevens.
Meanwhile, sellers should wait two to three years until much of the upcoming supply has been absorbed and the market favours sellers rather than buyers.
"Property owners who bought during the 2009-2012 period would see capital appreciation, while acquisitions over the 2012-2014 peak values would be facing a reduction of equity," said Thomas from Core.
"The best time for an investor to sell their property in any market is when prices are rising, most preferably at or near the peak of the property cycle, but that is a gamble as no one can predict for certain when property prices peak. There are a number of exceptions to this rule such as: the investor needs to free up capital for a better investment; the unit was bought at a much lower rate, so selling it will still generate a profit," concluded Stevens.
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