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UAE: Dubai Real estate moving towards a recovery

Wednesday, 07 July 2010 15:08

There have been some mixed messages concerning Dubai real estate in recent weeks, although most involved in the market suggest that the sector is now moving towards a recovery. Where there are differences of opinion is on when this rebound will fully kick in, how fast the property market will bounce back and how high the bounce will be.

A clue was given in the data issued by the Real Estate Data and Research Section of the Dubai Land Department (DLD) on June 23, showing that there has been a sharp jump in the number of real estate transactions in Dubai over the first five months of the year. In total, 3462 sales were registered from January through May, with sales being valued at $6.8bn and with 3169 of the sales being residential properties.

Though it is unlikely that the total number of residential sales this year will top the peaks of 2007 or 2008, when 10,845 and 7638 properties changed hands respectively, the real estate sector is well placed to eclipse the 4961 residential sales recorded in 2009.

Although there has been a pick-up in transactions, prices are still down compared to 2008 and 2009, when the average sale prices were $2880 and $2500 per sq metre, respectively. However, this year's average of $2360 per sq metre is still well up on the 2007 figure of $1900 per sq metre.

Mohammad Sultan Thani, the DLD's assistant director-general, believes that buyers are moving back into the market, taking advantage of the opportunities that lower prices present. "While we may see less value, there are many more transactions on a daily basis compared to last year," he told local media on June 23.

Sale prices for almost all products across the sector were still down on levels from 2008, and in most cases have still to distance themselves from the lows of last year. However, growing interest in the market suggests that stronger upward movement will not be too far away.

In particular, investors with cash on hand may well start moving into the market in greater numbers, looking to take advantage of the reduced prices before the property sector starts to accelerate again.

One upcoming opportunity for such investors will be planned foreclosure auctions, a first for the emirate, as banks look to put defaulted properties up for sale in an effort to recoup losses on their loan books. Although it is as yet unclear how the auctions will be organised – will the banks coordinate sales so as to limit the possible downward pressure on prices, for example – they will undoubtedly be a significant milestone for the local property market.

According to Khaldoun Tabari, the vice-chairman and CEO of contractors Drake and Scull International, Dubai's property market is in the process of finding the correct levels and buyers will return.

"It is not that people do not have the money, but they are not making the purchase," he told Arabian Business on June 23. "My opinion is that we have to establish a bottom for the market, then you will find people interested in purchasing as they will be able to make a gain and will start the ball rolling again."

While the ball may again be about to roll, there have been concerns that there could be some potholes in its path. Among these were worries that the property sector could be swamped by a wave of new projects being brought onto the market, with developers seeking to cash in on renewed interest and also capitalise on their investments, some of which have been suspended since the economic downturn.

However, according to a report issued by Dubai-based property services provider Harbour Real Estate in mid-June, the flow of new residential units could be more measured, with a steady stream set to come onto the market between now and the end of 2011 and beyond, rather than a sudden surge.

Instead of the projected 60,000 units expected to hit the market by the close of next year, the Harbour report predicts the total will be closer to 44,000, suggesting developers are taking a more measured approach as the sector works to balance supply and demand.

By holding off on releasing new projects, developers may be able to put a firm floor beneath prices. This would allow the real estate cycle to run its full course, says Santhosh Joseph, president and CEO of the Dubai Pearl development. Along with the property cycle, shifting trends in the economy will also bolster the real estate sector, Joseph said.

"The cost of living has gone down and people will shift their base to Dubai. It is a well-connected hub, and lifestyle and security are things you look at when you are affluent," he told the daily Gulf News on June 18.

While it may take the Dubai real estate sector time to return to form, it is moving in that direction, pushed along by demand and the underlying appeal of value for money.

Global Arab Network

This article is published in partnership with Oxford Business Group

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