Adroit Global Property Management

Last Updated: Jun 20, 2015
 
 

The UAE's house prices are now falling!



After the unsustainable growth surge of the last two years, Dubai’s housing market is now slowing sharply, and the same is true in Abu Dhabi.

During the year to April 2015, Dubai’s all-residential property price index (RPPI) fell by 2.8%, the first month of y-o-y decline since March 2012 and in sharp contrast with the spectacular 37.5% surge during the same period last year, based on latest figures released by Reidin.com. When adjusted for inflation, Dubai house prices actually dropped 6.8% over the same period. Dubai’s RPPI is calculated monthly and covers 7 cities, 8 main districts and 4 major projects. Abu Dhabi’s RPPI is also calculated monthly, and covers 7 cities and 4 main districts.
  • Dubai’s apartment sale prices were down by 3.6% (-7.6% in real terms) y-o-y in April 2015.
  • Dubai's villa sales prices rose slightly by 0.4% over the same period, but actually dropped 3.7% when adjusted for inflation.

Abu Dhabi, the UAE's capital, also experienced a decline in its all-residential property price index by 1.1% (-5.1% in real terms) during the year to end-April 2015.
  • Abu Dhabi's apartment sale prices fell by 3.4% (7.3% in real terms) in April 2015 from a year earlier.
  • Abu Dhabi's villa sales prices rose by a meagre 0.1% y-o-y in April 2015, but actually fell by 4% when adjusted for inflation.

Dubai's property market has been one of the world's most volatile. Dubai saw one of the world's worst housing crashes with house prices plunging by 53% from Q3 2008 to Q3 2011. The housing market started to recover in Q2 2012 with double-digit house price increases since then.

The Federal Mortgage Cap, introduced in 2013, has slowed the pace of residential value appreciation in Abu Dhabi and Dubai. In addition, the Dubai Land Department recently doubled property registration fees from 2% to 4% to dampen property demand.

Demand is now plunging. During the year to April 2015, property transactions, both in number and value, plunged by 51.8% and 37.1%, respectively. In 2014, there were 53,871 transactions in Dubai, according to Dubai Land Department (DLD), worth AED 218 billion (US$ 59.4 billion). About 51% were sales, while 44% were mortgages.

Transactions of completed apartments in Dubai dropped 12% in Q1 2015 from a year earlier, while those for completed villas were down by 35% over the same period, according to Reidin.com. The demand for off-plan properties in prime locations such as Dubai Marina has noticeably declined, as interest shifted to cheaper properties in secondary locations.

In contrast, demand in some developments remains stable in Abu Dhabi, despite the ongoing market correction, according to Asteco. Projects in Investment Areas such as Saadiyat Island, Reem Island and Al Raha Beach continued to be the most popular development areas. The Hidd Al Saadiyat, which is currently under construction, offers luxurious villas to homebuyers.

Some local property analysts remain optimistic about the future of the UAE property market. “We think the market is currently letting go of that speculative pricing layer, which once peeled, would result in a more holistic price level. We continue to believe that the current easing of prices is a result of market correction that will soon peg the demand and supply forces at a sustainable level,” said Haider Ali Khan, CEO of Bayut.com.

Others expect large house price falls. Real estate consultant Jones Lang LaSalle and the ratings agency Standard & Poor’s expect that average house prices in Dubai could fall by between 10% and 20% this year.

The IMF, which earlier warned UAE about overheating real estate prices in Dubai, has now backed down from its concerns.

UAE house pricesDubai's total residential stock was around 377,000 units, Abu Dhabi's around 243,000 units, at end-2014. In 2015 around 25,000 new housing units are expected to enter the Dubai market and 10,000 new housing units the Abu Dhabi market.

Due to falling oil prices, the UAE's economy is projected to expand by only 3.1% this year, after GDP growth of 3.6% in 2014, 5.2% in 2013, 4.7% in 2012 and 4.9% in 2011, according to the IMF. Dubai, which has a more diversified and less oil dependent economy, is expected to grow by about 5% this year.


Analysis of United Arab Emirates Residential Property Market »

RENTAL YIELDS
Last Updated: Sep 14, 2014


Our rental yields research indicates that some good fundamentals underpin Dubai's property market.  Apartments in Dubai now sell for around USD 3,700 to USD 4,300 per square metre (sq m):
  • Medium-sized apartments (120 sq. m. and 160 sq. m.) sell for an average of USD 4,000 per sq. m.
  • Large apartments (225 sq. m.) cost more, around USD 4,300 per sq. m.
  • Smaller apartments (75 sq. m.) are cheaper, selling for around USD 3,700 per sq. m..

This is an unusual pattern - smaller apartments usually are more expensive than larger apartments (per sq. m.) in the other major world cities.

Rents from small and medium-sized apartments average USD 22 per sq. m. per month, while large apartments rent for a little less, at USD 21 per sq. m. per month.  Looking from the landlord's point of view, these rental levels mean that a 75 sq. m. apartment can earn rental income of around USD 1,700 per month, while 120 sq. m. and 160 sq. m. apartments can earn rental incomes of around USD 2,700 and USD 3,700 per month, respectively, and 225 sq. m apartments can earn a monthly rental income of around USD 4,800 per month.

In conclusion the gross rental yields, i.e., the gross returns on investment if the apartment is fully rented out, are moderate to good, range from 5.87% on large apartments, to 7.21% on small apartments, the difference stemming from the lower cost of the smaller apartments, in per sq. n. terms.

Read Rental Yields  »

TAXES AND COSTS
Last Updated: Dec 06, 2013


Rental Income: There is no income tax, but that is slightly misleading, as there is a 5% tax on residential leases, assessed on the rental income.

Capital Gains: There is no capital gains taxation in Dubai.

Inheritance: The thorny issue of inheritance has caused a lot of debate. It is hoped that the position will be clearer once the new Land Law is enacted.

Residents: The Residents' visa renewal fee is AED1,360 (US$389) every three years per person.

Read Taxes and Costs  »

BUYING GUIDE
Last Updated: Dec 09, 2013


Total round-trip costs are around 5% to 9%. There are no property-related taxes in Dubai, which accounts for the low transaction costs. The buyer and the seller each pay registration fee at 2% of the property value. Real estate agent’s fee ranges from 1% to 5% of the property value.

Read Buying Guide  »

LANDLORD AND TENANT
Last Updated: Mar 04, 2009


The government introduced a rent cap of 15% in 2006, which was slashed to 7% in 2007. The rent cap was further reduced to 5% in 2008, in an effort to curb inflationary pressures.

In January 2009, Dubai’s Real Estate Regulating Agency (RERA) unveiled a new rental index to replace rent caps. Following this a new rental law was released, establishing the rental index as a benchmark for rent increases.



NEW RENTAL LAW

CURRENT RENTAL RATES
RENT INCREASE
FOR 2009
Equal to or 25% below the rental index
nil
26% to 35% below the rental index
5%
36% to 45% below the rental index
10%
46% to 55% below the rental index
15%
More than 55% below the rental index
20%

However, RERA has come under criticism because the new rent figures were much higher than current rental rates in the market. The rental index, compiled during mid-2008 (at the height of the property boom and before the fallout from the global financial crisis), gives an inflated view of rents in Dubai. The discrepancy caused uproar and confusion among tenants who were left watching their landlords hike their rents to unwarranted levels.

This prompted RERA to update the new rental index earlier than planned. The revised index is due to be released in April 2009. Those tenants who have not yet renewed their contracts are likely to hold on to their old contracts until the new index is released.


Read Landlord and Tenant  »

ECONOMIC GROWTH
Last Updated: Jun 20, 2015

Economic diversification will stimulate UAE’s growth in 2015

UAE gdp inflationThe UAE’s economy grew by about 4.8% y-o-y to more than AED1.54 trillion (US$ 42 billion) in 2014, despite the sharp decline of oil prices during the second half of 2014, according to UAE’s Minister of Economy Sultan Bin Saeed Al Mansoori.

After an economic slump in 2009, the economy quickly recovered, expanding by 1.6% in 2010, 4.9% in 2011, and 4.7% in 2012.

The good economic growth was attributed by Minister Al Mansoori to the government’s efforts to diversify the economy. Non-oil sectors account for around 69% of the country’s GDP, while the remaining share is oil. Driving the country’s economic diversification is the Abu Dhabi’s Economic Vision 2030, and Dubai’s Strategic Plan 2015, which aims to increase investment in industrial and export-oriented sectors. At the federal level, the UAE's "2021 Vision" positions science and technology, research, and innovation at the centre of a knowledge-based and highly competitive economy by 2021.

Non-oil GDP grew by around 5.6% in 2014, and growth is expected to remain in the 5% to 6% range from till 2016, according to the Abu Dhabi Commercial Bank (ADCB).

Due to the acceleration of non-oil diversification, the UAE is expected to grow at around 4.5% in 2015.

“With this good performance, the general budget is expected to see a surplus of 9% of GDP, double the figure of 2012. Inflation rates have been estimated at between 2% and 3% in 2014, thanks to the flexibility of the UAE’s economy and the measures being taken by the government to curb price hikes,” according to Finance Minister Al Mansoori.

Inflation this year is likely to be at a manageable level of around 2.5%, according to both the UAE's Ministry of Economy and the IMF, due to macro-economic measures that the government took after being warned by the IMF of a possible bubble or boom-bust cycle. The UAE’s inflation has already slowed, as the strengthening of the dirham in line with the dollar (to which it is pegged) has reduced the cost of imported food. In Dubai, the overall inflation rate declined to 4.3% in February 2015 from 4.5% the previous month. Likewise, Abu Dhabi’s inflation rate also dropped to 4.6% from 5.0% over the same period.

Where to buy property in United Arab Emirates

 
 

Seven city-states compose the United Arab Emirates (UAE): DubaiAbu Dhabi,SharjahAjmanUmm al-QuwainRas al-Khaimah and Fujairah.

The British became involved in the area in the early 19th century, ostensibly “protecting” the various sheikdoms from pirates who posed a dangerous threat to them. The British enforced a truce in 1853, but did not colonize the area. Instead, they grouped the sheikdoms into the Trucial States. The UAE was born in 1971 after the British gave up protective control.

The emirates hug 800 kilometres of coastline, from the Persian Gulf to the Gulf of Oman, in the eastern part of the Arabian peninsula. The UAE’s neighbours are Oman to its north and east, Saudi Arabia to the south and west, and Qatar to the west. The UAE is four-fifths dry desert.

Once, the emirates survived on fishing, trading, and pearl diving (the region’s beautiful, natural pearls were a major export until the industry declined in the 1940s), the people mostly desert nomads and seafarers. The discovery of oil in the 1960s in Abu Dhabi, then the poorest emirate, catapulted the federation into economic progress at a dizzying speed.

UAE nationals benefit from free education and excellent health care. While the official religion of the UAE is Islam, there is religious tolerance—necessarily, as foreigners number one-fourth of the entire population. UK citizens make up a huge portion of the senior expat community, although by numbers, half the expats are from South Asia, such as Indians and Pakistanis.

Flush with cash, the oil-rich region proudly displays an ultramodern infrastructure, especially in Dubai. It is the most densely-packed and highly urbanized emirate, and was already a thriving port town even before the oil boom.

A few memories of the charms of desert living have been retained. In Abu Dhabi, the biggest emirate, a Heritage Village pays tribute to the nomadic lifestyle of the region’s first tribes, the Bedouins.

English is widely spoken, the crime rate is low, and income is not taxed. These are among the incentives for foreigners to come to the UAE. They come not just for work and money, but also for leisure, especially those seeking sun and warmth during winter.

Tourism is now a major income earner for the UAE, after the emirates struck it rich with oil and their newfound wealth led to a huge property boom. The once featureless desert has bloomed into the world’s most luxurious playgrounds of the rich and famous. 

The sun shines for eight months a year here. The cooler months are November to January and bring rainfall that doesn’t go beyond five inches annually.

There are good beaches in the UAE, such as Al Mamza in Dubai and Khor Fakkanin Sharjah. Of course, the weather is really too hot for much of the year. There is good diving in both the Gulf of Oman and the Persian Gulf, mostly centred on wreck sites. Those looking for reefs can go to the less urbanized Fujairah, the youngest of the emirates. Off-the-beaten-track thrills include desert adventures such as “wadi bashing”, sand skiing and dune driving. Despite the rise of huge and modern shopping centres, bazaars or souks remain very much part of daily life.

Horse-racing is big in the UAE. The Bedouins have been breeding and racing Arabian horses since time immemorial. Each emirate has its own specialty: Dubai, racing; Dubai and Abu Dhabi, endurance riding; and Ajman and Sharjah, horse shows. Camel racing and falconry are also still actively enjoyed in the UAE.

Souk shopping was an important part of Gulf lifestyle even before the UAE’s first shopping mall. Dubai has a huge Gold Souk of around 300 stores, which gave it the moniker City of Gold. Because of its large expat community and its duty-free zones, international brands for all sorts of consumer items, from food to electronics, are easily available in Dubai.

Liquor is limited to hotels and restaurants that mainly serve tourists, and to purchase liquor one has to obtain a license.

The UAE government is determined to make the most of prevailing favourable conditions to improve its citizen’s lot before the oil reserves run dry. So there have been ambitious efforts to develop the country as a world-class business, commerce and tourism hub. To encourage direct foreign investments, free zones were introduced in the 80s, starting with Dubai’s port city of Jebel Ali. Most of these free zones are found in Dubai, with about 20 operational to date.

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