While 2020 was a tough year for the UAE economy, 2021 looks to be a breakout year for the Dubai property market as buyers are taking advantage of attractive financing costs, eased visa regulations, a successful vaccination drive, historically-low prices and an economy still open for business despite the pandemic. Today, Dubai’s apartment and villa markets have reached transaction and valuation records not seen since 2011.
The Dubai property market still faces a number of challenges – thanks to the Covid-19 pandemic and a growing supply glut – but a closer look at the data reveals significant underlying factors that will spur long-term growth in the market.
The Supply Glut in Dubai Property Market Isn’t Universal
It’s clear as day that the Dubai property market is oversupplied, with apartments under construction in 2021 set to be more than 2019 and 2020 combined. However, most of the scheduled projects don’t tend to be completed due to either logistical issues or halts in funding. Despite only a few months left in the year, only a fourth of all upcoming supply for 2021 has been completed. What’s important to note is that Dubai real estate is a pool of micro-markets, so the aggregate numbers don’t always tell the full story.
New areas with an inflow of supply and secondary areas in the emirate’s outskirts like Motor City are still seeing substantial price falls as investors view these areas as higher risk due to a lack of historical data and precedence (i.e. population migration to these areas, distance from amenities). When it comes to the Dubai real estate market, these new areas are traditionally lagging indicators of overall market health as investors tend to flock to prime and established areas, like Palm Jumeirah and Dubai Marina, which have had price gains of over 10-15% since November 2020, according to Property Monitor. (https://www.bloomberg.com/news/articles/2021-04-29/the-rich-find-haven-in-dubai-and-luxury-home-sale-boom-ensues)
Also, Dubai’s apartment price-to-rent ratio in 2021 is 19, which indicates a moderate price to rent ratio – meaning that the average price of real estate is a bit higher compared to renting. So, most of the population will be renting rather than buying their own homes, indicating that it’s a good time to invest in rental properties.
From an investment perspective, there are gains to be made despite the supply glut but it depends on where you look within these micro-markets and your overall investment horizon.
Lower Financing and Payment Costs
Interest rate cuts in response to the pandemic have led to a fall in the cost of borrowing, with rates falling from 2-2.75% in 2019 to 1.5% in 2021. Mortgage rates have also become more attractive for investors as the median mortgage rate fell from 5.2% in Q4 2019 to 2.49% in Q4 2020. (https://gulfnews.com/business/property/uae-mortgage-transactions-hit-record-high-in-december-1.1611123162180)
Average villa service charges – which is the recurring fees paid for the maintenance/upkeep of a property – have also fallen dramatically to 2.96 AED/Sqf from 3.60 AED/Sqft in 2019. Service charges tend to be the largest fixed cost for property and a lower service-charge-to-rent ratio makes property investment attractive as more revenue is retained by the investor/owner.
Higher Loan-to-Value Ratios
Loan-to-Value (LTV) ratios, which compares the amount of a loan you’re hoping to borrow against the appraised value of the property you want to buy, have increased by 5% for all first time property buyers – who can now borrow up to 80-85% of a property’s value as the home loan amount. This means that you only need to invest 15-20% of a property’s value as a down payment. Higher LTV ratios reduced a significant barrier to entry for first time buyers, therefore opening up a larger pool of local, expatriate and foreign investors and homeowners.
Source: https://www.pxfuel.com/en/free-photo-eqpeu. Open Creative Commons License.
Eased Visa Regulations
2021 also marked a year of dramatic shifts in UAE’s immigration policy, with a number of new visa options available to maintain existing human capital and bring in foreign investment. For example, investors who inject AED10 million in capital, with up to 40% of the investment making up property purchases, can obtain a 10-year visa. Retirees, gifted students and entrepreneurs who meet specific criteria can also obtain a 5-year visa or even a golden visa. High skill talent in specific fields can obtain 10-year visas or even UAE citizenship.
The UAE has traditionally been seen as a short-term stay but with the new visa options, more expats, new and old, can call the UAE home.
Prospecting Fin-tech Space for Dubai Property Market
Since 2019, the UAE has become an incubator for emerging fintech firms, especially those with innovative solutions dedicated to property markets. The Covid-19 pandemic has accelerated digital transformation in the Dubai real estate space as lockdowns and social distancing policies pushed the industry to utilize technology to maintain business continuity. As a result, the evolution of digital solutions has made real estate more accessible and affordable, particularly due to the significant fall in prices and costs brought about by the pandemic.
Digital solutions provided by fintech companies like SmartCrowd, where investors can utilize a real estate investment platform (REIP) to invest in a variety of real estate opportunities using a crowdfunding model, where your share of ownership is proportional to your investment (which can be as low as AED5,000).
The UAE property market is embracing digital transformation through REIPs as investors are able to take advantage of falling market prices by allocating small amounts into REIPs today in order to take advantage of bargains in the market, without taking on too much risk. You can learn more about SmartCrowd by signing up to its platform for free and by attending its open monthly webinars.
The Dubai property market has come a long way since the beginning of the pandemic. The UAE has emerged as a leader in the MENA fintech space, with firms like SmartCrowd offering innovative solutions and investment opportunities to investors. Lowered financing costs and service charges, along with higher LTV ratios, are reducing the barriers to entry into the property space. As changes to visa regulations are directly linked to property ownership, the long-term effects of these policies underpin demand for UAE real estate and even encourage existing investors to expand their investment horizons from years to decades – resulting in greater investment in newer property micro-markets as they begin a long-term engagement as integral members of UAE’s cosmopolitan society.