There are always perceptions of oversupply and undersupply in the Dubai real estate market, which is largely determined by where we are in economic and industry cycles. As the market undergoes structural changes to accommodate shifts in demand, market segments will exhibit different levels of either oversupply or undersupply. For example, the luxury segment in Dubai is currently showing signs of oversupply, while the same cannot be said for the affordable segments. This is because there has been a shift in buyer demand, both from both owner-occupiers and investors, towards the more affordable segments. This reflects a natural consequence of economic growth, market maturation and overall development as the middle and lower-middle socioeconomic classes start to expand as a proportion of the overall population.
A growing economy
This expansion is to be expected as the economy grows, and, as we know with any growing economy, imbalances are frequent and take time to be eliminated. Taking the long-term view, the existing oversupply in the market is likely to be absorbed well before 2020. It is estimated that there will be at least another 100,000 units added to the market in the next 10 years. On the face of it, that number hardly seems sufficient. From a macro level, Dubai needs people to support an economy that is estimated to grow more than four per cent this year, but will increase exponentially as the end of the decade draws near. The reason for this growth trajectory is the commitment and determination to deliver on initiatives such as the World Expo 2020.
The Expo alone is expected to generate an additional 270,000 jobs and drive demand for housing and commercial facilities that by and large don’t currently exist. It is estimated that the number of people living in the emirate will grow to around 3.4 million by 2020 from around 2.7 million today.
Beyond oil
While the price of oil is a big economic issue for the region, Dubai has managed to develop a level of diversification that has allowed it to weather the current fragility of the oil industry. With oil representing only about four per cent of Dubai’s GDP, the effect of the decline in oil prices has not been as drastic as some may think. Dubai’s economy is being driven by fundamentals such as tourism and trade and the focus of spending will be on new projects to grow these all-important, revenue-generating economic segments and further diversification.
Dubai attracted 14.9 million visitors last year, continuing an uninterrupted growth trend since 2010. The emirate is well on track to attract more than 20 million visitors in 2020.
Human capital
It has been estimated that 277,000 extra jobs will be generated to ensure the estimated 20 million visitors to the Expo see Dubai in its most favourable light. This is expected to generate significant demand for real estate assets. Dubai also has an advantage over many Western economies in that looking forward there is a requirement for intellectual and human capital.
Attracting this critical resource will support economic growth, providing additional impetus for the realty industry to enjoy the predictable surge in demand for accommodation and commercial space of all types, from labour accommodation and offices to warehouses, apartments and executive villas.
Affordable housing
The structural shift towards more affordable housing will not only serve to accommodate the expected rapid population growth associated with the 2020 Expo, but also serve as an important factor in the development of the Dubai economy overall. Every emerging economy needs to develop a strong middle class as its expansion is critical to sustainable growth. In addition, for Dubai to compete effectively on a regional and global basis, it needs to ensure that the cost of doing business in the emirate does not position it as an outlier when entrepreneurs or corporations are considering alternatives for their operations.
Lucrative payment plans
There are investment opportunities that had not been seen previously, while developers are also offering lucrative payment plans, which is unprecedented in the market. Whether it’s an affordable studio or a luxury villa, there is an investment opportunity in every segment of the market.
| Why buy property this year? |
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| 1. The market is offering best value for some time. A slew of affordable properties have been launched over the past two years and there will be more launched this year. This structural shift in the market has been a boon for first-home buyers, as affordability, or a lack thereof, as a reason to continue to rent is disappearing fast. Whether it’s an affordable studio or a luxury villa, there are great-value opportunities in every segment of the market, supported by the most affordable payment plans seen in years. 2. The value of your property will be increasing as the US dollar continues to strengthen this year. The US Federal Reserve is committed to normalising interest rates this year, which is good news for investors who are holding assets denominated in or pegged to the US dollar. 3. Dubai’s economy is being driven by fundamentals such as tourism and trade. Hosting the World Expo will provide additional impetus for the industry to enjoy continued growth and the predictable surge in demand for accommodation and commercial space of all types, and this will have a significant effect on property values. 4. Owning property will allow you to achieve your financial security goals by building an asset base that will serve you and your family well into the future. |
But the most compelling reason Dubai’s property market is such a tempting investment opportunity is the financial return. With a superior investment yield and return on investment, Dubai is hard to beat over the next five years. Properties in the burgeoning affordable segment continue to provide gross rental returns of eight per cent and even up to ten per cent. With the recent market price correction and the slew of financial incentives that have been introduced, these yields and returns can be achieved with comparatively minimal capital outlay. And the good news is both rental yields and property values are expected to increase as the Expo draws near.
