The Maturation of Real Estate in Dubai

 Dubai, compared to its neighbouring emirates and countries within the GCC, has been known to have a very distinct freehold on the way they conduct business. However, there has been a requirement for increased regulation in the market recently, which means that the free-reign of freehold might be coming to an end. But not for the wrong reasons.

After the property bubble collapse left so many investors with bad experiences a few years ago, it was high time for the government in Dubai to enforce strict procedures and rulings for the Dubai real estate market.

Over recent years, Dubai has seen increases in regulations and increased amount of stability in the market in what experts proclaim as a maturing of the market.

Typically there are many definitions of what may defined as a mature market, but a few key identifiers could be described as follows:

•    A market is mature when prices have reached a state of normalcy.
•    When movement in customers’ needs and desires do not appear to be evolving rapidly.
•    Consolidation by leading competitors reducing competition.
•    Market shares of leading competitors being solidified and changing gradually, if at all.
•    Regulatory frameworks, legal protections and regulations aimed at protecting consumers and businesses are in place and implemented.
•    Steady regular profits and growth for the developers.

The United Arab Emirates has only recently been classed as an emerging market by the MSCI. This means it has a long way to go before it’s on par with more developed countries and cities. But looking at the identifiers above, there are a few items pointing to market maturation. So we asked Andrew Chambers, CEO of GGICO Properties and long time real estate veteran, for enlightenment as to what would be the signs that a real estate market is maturing?

INCREASED REGULATIONS

-    Increased regulations aimed at reducing short term speculation and flipping is when speculators buy, with minimal deposit down and flipping or reselling before property is even registered with Oqood. Oqood is a service provided to developers by the Dubai Land Department which aims to ease the registering of all types of contracts between off-plan properties developers and buyers. It allows developers to manage their off-plan properties and participants within a simple framework and user-friendly bilingual Arabic-English interface.

While this was rampant before, it is much less prevalent now—with RERA regulations prescribing registration of transactions. Also, the rate of capital growth of property has slowed tremendously compared with certain years over the last decade.

MORE NEGOTIATIONS

-    Buyer and seller expectations on a price to exchange are at least close enough to allow for realistic negotiations. At present, sellers are asking higher prices than buyers are willing to pay. This has slowed the rates of sale in the market.

LESS RISKY FINANCIAL LEVERAGE

-    When small firms or individuals borrow multiple times and speculate on “off plan” or projects with payment plans in hope that they can resell and make a premium before later payments due.

STABILIZING MARKET PRICES

-    We still see more of a supply driven market, which has suited Dubai’s great growth and has worked when viewed over 10 years or so. But with a steady, measured and considered growth, a planned release of products will help stabilize the market. The market remains a little oversupplied at the luxury end and the impact of lower oil prices and stronger dollar will undoubtedly dampen the demand from overseas investors. However, domestic demand at the mid-end remains inelastic to these macro trends and developers and investors that capitalize on this will be amply rewarded in the years ahead.

BROKERAGE MARKET

-    Tremendous steps have been and are continuing to be taken to control the behaviour of brokers. Also, the slow down clears out many non-performing agents and agencies. Less rogue agents and slowing down the amount of players in the market will be good for market confidence and stability.

AFFORDABILITY

-    The last decade has seen an enormous volume of Top End/Luxury properties become available, which has sold well. Unfortunately, this has left behind the requirements of regular, salary earning expat demands from those living and working here, with requirement for more modest housing that can be afforded from salaries and a level of mortgage. This is now starting to be addressed by some developers in areas such as SO and DSC, where more mid level property, with good payment plans allowing people to buy to occupy.

CLEARANCE FROM BANKS BOOKS OF TOXIC/PROBLEM STOCK

-    The past 5 years has seen banks stuck with many non-performing or incomplete properties in default. This is not good for a stable property market. This seems to be resolved now, with many projects restarted with adequate finance and good business plan to see the construction to completion.

SUMMARY

Whilst there is some way to go for Dubai to be recognized as what the world sees as a Mature Market, Dubai has well survived turbulent times and a number of the issues raised here either resolved or in the process of being resolved.

Nevertheless, it is still important to keep Dubai as being seen as a robust and very positive market position in the World’s eyes.

This can be helped with the continued investment in infrastructure and continual innovation and investment in such opportunities as EXPO2020, WC Airport growth, continued development of tourist attractions such as mid range hotels, theme parks, and other attractions to boost further Tourism growth.