Dubai rents and property prices are expected to decline further in 2015 mainly due to the vast supply of new units. Regulations for new buildings permits remain unrestricted and the low interest rates for lending encourage developers to launch more and more new projects, which at present they can’t sell in off-plan stage as the prices are higher set than the prices of the ready to move in homes, but which they think will be highly successful when World Expo 2020 nears. And some of these new projects, in particular the ones related to already established conglomerates, indeed, will be very successful in the long term.
Since April 2014, the unfolding real estate market correction adjusted the values of luxurious properties by as much as 30% in some areas of the city. Rental prices are also affected, but at a lower rates. In the fourth quarter of 2014, the decline in rents intensifies as more and more properties remain empty for longer periods of time.
The sharp decline in oil prices suggests a slowdown in economic growth and reduced government spending on infrastructure projects. This factors combined with geopolitical risks and slowing growth in the emerging markets will suppress market activity. At least during the coming six to nine months, both financial and real estate markets, most likely will slowdown. And if the financial markets will most probably rebound faster on the back of the sharp rise of oil prices which is expected from the third quarter of 2015 onwards, Dubai’s property market will likely remain subdued for a longer period of time.
The decline in property prices and rents does not mean that there is no activity in the real estate market. For end-users who can still obtain mortgages with low interest rate, this is the right time to purchase homes. So is for wealthy investors, who can’t expect now to make fast profits in the financial markets and search for more stable investments. For them, there will be plenty of opportunities to buy prime properties on discounted prices. There will always be individuals who can’t pay their mortgages and banks looking to recover losses from bad loans. Such distressed deals and ordinary retail activities as renting homes to newcomers will keep real estate agents busy, despite that most of them will likely make lower profits.
Investment appetite continues to remain strong, with investors now more keen to free up capital due to the stock market collapse and to move on to their next purchase. Significant improvements to Dubai’s infrastructure are also set to bolster long term capital value growth across the city.
Despite the cooling of rents, tenant demand remains and will remain strong due to the transitional nature of Dubai where young expat population arrives constantly in large number. The leisure, hospitality, aviation, finance, banking and retail have seen rapid expansion, as evidenced by the level of housing requirements from these sectors.
Now Dubai’s real estate market resembles more and more the matured markets of the developed countries, and typical market trends and tendencies can be observed, analyzed and predicted. Only unexpected changes in regulations, such as a reduction of the property ownership transfer fee to 2% may encourage stronger activities, but even then Dubai rents will never reach the levels seen a few years back when the availability of freehold units was very limited.