Plummeting property prices in Dubai is creating a wealth of cheap investment opportunities, new research shows.
Residential property prices in Dubai dropped by 10% in the first quarter of the year because of a strengthening dollar and a slump in oil prices, according to a report by JLL.
Higher transaction fees and more stringent lending conditions have also contributed to the market slowdown, with JLL forecasting that apartment and house prices fell by 10% and 11% respectively in the first three months of 2016. Rents dropped by around 5% over the same period.
Earlier this week, the chairman and founder of Emaar Properties, builder of the world’s tallest tower, Burj Khalifa, said that he was “really scared” of conditions in the Dubai property market coming into 2016.
The Dubai property sector has softened since late-2014 after a three-year boom fed by inflows of cash from politically-unstable Arab nations. Consultants CBRE registered a 15% decline in prices in 2015 and are forecasting a further 10% fall this year.
“The continued period of low oil prices is tightening regional liquidity which is also affecting the real estate market,” Craig Plumb, JLL MENA head of research, said in the report.
But while the short- to medium-term outlook for the Dubai real estate market is less encouraging, Plumb said that JLL remains positive on the long-term outlook due to “future growth” and “demand driver like the Expo 2020 and other mega infrastructure developments”.
With longer terms market conditions set to improve, property investors seeking better-than-average yields are reportedly starting to pile into the market now with a view to buying up stock in delayed or distressed projects in Dubai, and at bargain basement prices.
“It happened in 2010-11 when there were a lot of such projects,” said Balaji Parthasarathy, director at Radiant Star, a recently created investment arm. “New investors could came into and revive - there are similar opportunities available now.”
He continued, “There are differences in investor preferences between then and now. In 2010-11, the motivating factor was whether a project had attained a 70-80% off-plan before it ran into problems. Location was secondary in their preferences.
“But, now, it’s all about where the project is located. That’s what gets investors most excited. Even now, they can pick up projects in need of funds in highly developed clusters such as Dubai Marina and Business Bay. The only thing to keep in mind is that regulatory clearances can take a bit of time.”
Despite concerns about the state of the Dubai property market, Emaar Properties unveiled plans last week to construct the world’s tallest tower in the Middle Eastern emirate, set to rise slightly above the Burj Khalifa, which currently tops out at 828 meters.
The announcement by Emaar underlines Dubai’s ambition to establish itself as a global investment and tourism hub by often pursuing futuristic megaprojects such as artificial islands off its coast or an indoor ski slope.
“It [the height] will probably be announced when we open the tower but it will be a notch taller than the Burj Khalifa,” said Mohamed Alabbar, chairman of Emaar.
It's fair to say that Dubai offers room for growth!