DUBAI 30 August 2020: For many years now, we have heard the same story about the Dubai property market – it is vastly over supplied and the oversupply is what has driven property prices lower.
Yet, I believe that affordability is the most significant and most overlooked cause for a drop in house prices.
In 2013, the market was threatening to run away and there were fears of another ‘bubble’. The government brought in measures to control this – we went from 90% loan to value (LTV), meaning a buyer needed a 10% deposit, to 75% LTV, meaning a buyer would require a 25% deposit. The property transfer fees at the Dubai Land Department also doubled from 2% to 4%.
These controlling factors had the desired cooling affect and property prices have steadily declined since. Has supply impacted the market? Yes, but I don’t believe to the extent that most people think it has. We have long been the proponent for the fact there is a huge amount of sentiment to purchase in Dubai, especially amongst first-time buyers, but it’s the affordability, or lack of, which has stopped a lot of people climbing on to the property ladder.
Downpayment of 22%
The landscape of the Dubai property market has changed a little now. In March, the Central Bank of UAE announced an increase to the LTV to help stimulate the market in response to the emergence of the Covid 19 pandemic. First-time buyers can now buy a property with an 85% LTV for Emiratis and 80% LTV for expats. So, instead of putting down a deposit and fees of up to 33% of the property value, a buyer can now secure the property that they want for only 22%. In addition to this, mortgage rates are as low as they have ever been.
As a result, the upfront payment for a property is the lowest it has been for six years and the monthly cost of a mortgage is also the lowest it has been, sometimes lower than a monthly rent payment. This has enabled a lot of people to get on the property ladder, and, in turn, moves the bottom of the market to enable existing owners to upsell and improve their current property to a larger plot or a different area.
As with the price decline, there is no single factor that impacts a market. However, the above has been the significant driver in the record amount of buyers registering their interest to purchase and the transaction levels that we have seen in recent weeks.
Current state of play
Which leads us to the current state of play in the market. Far from being a market that is oversupplied, we are seeing an overwhelming undersupply in many areas. This in turn, in some cases, is seeing prices being impacted.
If we take a look at one of the longest established areas, The Springs; We have a 2E that we sold 8 months ago for Dh2,000,000 that we have just re-sold for Dh2,075,000. This may seem a small increment, but for the last six years we haven’t witnessed this kind of activity.
At the start of the year, we sold type 3M properties in The Springs for around the Dh1,500,000 mark and now we’re completing transactions at Dh1,675,000. It’s a similar picture on type 3E villas, going from Dh1,475,000 to Dh1,750,000.
There has also been high demand in the Dubai Hills Estates. We were seeing transactions of 5 bedroom villas at Dh2,350,000, whereas now we have just sold a 5 bedroom property for Dh2,700,000. The same can be seen on the lettings side, a 3-bedroom Sidra villa was letting for roughly Dh140,000 in Q2 of 2020 and can now be rented for between Dh150,000 – Dh155,000. A 4 bedroom Sidra Villa in Q2 2020 could be rented for Dh175,000 and in Q3 2020, the same villa could be rented for as high as Dh195,000.
Our Palm Jumeirah specialist has a number of buyers looking for a property with a budget of Dh7.5 million. Two months ago, he would have had seven or eight properties he could show the client, right now, he has none. All fairly priced villas on the Palm are being snapped up right away.
A 2 bedroom C type apartment in Marina Residence sold for Dh1,280,000 in Q2. Last week we sold a C type apartment for Dh1,610,000.
In Jumeirah Park, 3 bedroom villas on the market are few and far between and in Jumeirah Village Triangle (JVT) 2 bedroom independent villas are also hard to come by. They were previously selling for Dh1,700,000 – Dh1,800,000 – now buyers are willing to pay up to Dh2,000,000.
Now a great time to buy
There are more examples like the above, whilst at the same time there are still a lot of areas where we aren’t seeing this pattern emerge. I’m not going to say the market is on the rise but all the information in this article is accurate so it’s certainly worth paying attention to. It could well be that we start seeing and talking about the property market by certain areas or property types, rather than making broad statements to cover the Dubai market as a whole.
What the data is leading me to believe, as well as a lot of our clients, is that for anyone with at least a midterm view of staying in Dubai – now is a great time to buy.
We’re in a situation where prices have declined for six years, we’re coming through something the world has never experienced before, the upfront money needed to enter the market has dropped to the lowest level needed for six years and mortgage and interest rates are as low as they have ever been.
Clients have come round to the thinking that if now isn’t the right time to buy then when will it be? If you look at global market reports, Dubai is one of the cheapest major cities to buy a property in. It is also one of the most forward thinking and technologically advancing places to live. This makes the city very attractive for business, family life and investment.
Note: The author is CEO of Allsopp & Allsopp
CLICK FOR MORE NEWS ABOUT CORONAVIRUS