Real estate shows signs of recovery

Dubai's real estate sector has shown signs of a revival, as property prices picked up in select areas as residents opt for ready-to-move-in properties by availing the rent-to-own option as well as convenient payment plans offered by the financial institutions and developers, expert say.

Analysts and property brokers said that there is a demand for Dubai property especially located in free zones because of attractive payment plans and low valuations after the price correction in past two years.

Referring to brisk sales activity in Dubai Land, Silicon Oasis, International City and Discovery Garden in July and August, some property brokers said that the real estate market, which contributed 7.2 per cent to Dubai's gross domestic product in 2018, has touched the bottom and prices will stage a rebound across the UAE by year-end.

Latest Reidin GCP data also indicated price gains from five per cent to 15 per cent in select areas such as the Palm Jumeirh, and Dubai Marina, reflecting a positive sign for Dubai real estate industry.

Experts attributed the stability in the market to government consistent policies, visa reforms, price correction, Expo 2020, rent-to-own option and up to 15-year and 20-year long-term payment plans.

Shaher Mousli, chairman of Arthur Mackenzy Properties Group, said that Dubai has emerged as a matured market in recent years as the industry remains stable despite a price correction in recent years.

Citing property consultancy Asteco, Standard & Poor's recently said property prices have fallen 25 per cent to 33 per cent in nominal terms since 2014.

Mousli, a vocal supporter of rent-to-own scheme, said that the concept is the future of the region's real estate sector as it eliminates the entry barriers that hold many prospective buyers back.

"The concept came to the UAE real estate industry some years back, but was not actively continued and now even though quite late it has been welcomed by buyers and now more developers are joining the band wagon based on the concept's success," he said.

About the 15-year or 20-year payment plan to attract more buyers, Mousli said financial institutions and real estate run hand in hand globally. It is not possible for the latter to flourish in the absence of available finance for buyers.

"In fact all industries depend on financial institutions for growth and momentum. But considering the challenges and barriers that most potential home owners face from the financial institutions in the region, rent-to-own plan is imperative for the industry to sustain and support its own growth. I feel long-term payment plan up to 15 years or 20 years can lift the market and will inspire existing tenants to become a homeowner in one of the best developed markets of the world," he said.

The future is bright

Maan Al Awlaqi, executive director for Commercial at Aldar Properties, said that the future of the real estate sector in the UAE is bright.

"The future is bright. Our own rent-to-own schemes have proven to be a huge success for us and our customers," he said. "Customers benefit from a more accessible route to property ownership as there is no down payment in addition to a much smoother transition from renting to owning and at the same time building up their home equity."

About the long-term payment plans, he said real estate developers should be in the business of creating homes and communities, and not be providers of long-term home financing.

"This is very much something for the banks and mortgage providers to focus on. The other fact to consider is that the increased risk that this would present to developers would most likely raise costs which would be passed onto the customer in the form of higher home purchase prices," he said.

Damac has a different view

Niall McLoughlin, senior vice-president, Damac Properties, has a different opinion and said every company's approach changes along with the changing landscape of its industry.

"From our perspective, our business is focused on maintaining liquidity and enabling cash collection in order to maintain strong balance sheets. This is perceptible through our more conservative business model and offering, and we remain one of the most stable investment options in the country," he said.

In addition, he said that payment plans for 15 and 20 year terms are a convenience offered by banks, not real estate developers.

"Newer concepts like rent to own and long-term payment plans are the result of market cycles. At such time, we choose to focus on project execution, along with competitively pricing existing inventory, and we believe that our approach will bode well for us in the long run," McLoughlin said.

A good option, but.

Haider Tuaima, head of Real Estate Research at ValuStrat, said that rent-to-own schemes were offered in the past and are offered today, but for a limited number of projects.

"Depends on the direction of the market, in a declining market rent to own may be a good option for vendors to generate revenue stream from unsold stock, however, for the buyer, it means paying rent plus a premium with the option to own the property.

"These premiums could make or break the deal for the buyer. In a growing market, rent-to-own concept offers 'try before you buy' option with an agreed total price, while buyers get the flexibility, vendors may feel they could sell for higher prices as the market grows.

"Vendors need to further adjust to market demand in order to sell more of these homes. At the moment, medium-term post-handover payment plans, as opposed to rent to own and mortgage, seem to attract most of the investors," he said.

About long-term plans, he said mortgages also offer 15-20 payment terms, however, the key point is minimising or waiving the down-payment towards the purchase price of the property.

"Deposits and other acquisition costs amount to at least 30 per cent of the purchase price, rent to own on the other hand does not require a down-payment. But from the developer's perspective it is un-likely - given the very long time frame it would take for the builder to achieve full payment on their asset," he said.

Invest and own

Referring to market analysts report, chief executive of Azizi Developments Farhad Azizi, said that it is cheaper to buy a property in Dubai rather than renting out an apartment or villa, especially with the introduction of supportive laws that guarantee and protect investor rights.

With time, an increasing number of people are realising the worth of investing in property, and this is reflected in the growth in real estate transactions - by number and value - as reported by the Dubai Land Department (DLD), which recorded Dh66 billion worth of real estate transactions in the first five months of 2019, signifying a 15 per cent increase from 2018.

"With clear policies in place, the current market condition is conducive for this shift, being further aided by developers and financial institutions that are offering affordable and convenient payment plans to encourage more mid-income professionals to invest in rent-to-own homes," he said.

"It is an initiative that is swiftly gaining traction, with DLD launching a rent-to-own registration service to provide a clear legal structure for rent-to-own homes that includes rental and future sales agreements in the contracts," he said.

About the long-term payment plan, Azizi said: "Yes, I strongly believe that long-term payment plans are crucial in attracting investors and buyers. But, I firmly believe that it is best to let financial institutions handle such solutions, as they specialise in it, rather than offering extensive post-handover payment plans ourselves."

He said a great chunk of UAE expatriates still live in rented homes, and most of them aspire to own a home in Dubai.

"So, as the real estate sector matures, we as developers, together with expert financial institutions, need to come up with lucrative and easy payment plans to drive growth. It lessens the burden and allows potential buyers and investors to conveniently settle their payments," he said.