Most expatriates in the UAE rent property and put aside money to be remitted back home. However, with real estate prices back on track in 2013 and stabilising in most quarters of 2014, several tenants with a long-term investment horizon are increasingly considering to take the plunge into home ownership in order to leverage the capital appreciation prospects of property here. Besides, they also want to build equity rather than spend money on rents with no returns in sight.
Meet Ruchika Airon, a human resources professional and Indian expatriate, who rents an apartment in The Greens, Dubai, but is considering purchasing a villa this year.
“Given the high rents we pay, I think it is a better proposition to buy a property since there is enormous cost savings to be had. We are looking to purchase a ready-to-move-in property in Jumeirah Village Triangle (JVT) because we have a long-term investment horizon. Although risks persist in terms of changing rules and the possibility of a market crash, we believe paying rent is a waste of money.”
According to figures from real estate consultancy Asteco, areas like Jumeirah Village are currently available at Dh800 to Dh1,050 per square foot, down three per cent quarter-on-quarter, but up 32 per cent year-on-year; they still hold promise in the long term as the surrounding infrastructure takes shape.
“Anecdotal evidence is that some tenants have already started buying because of sales price drops compared to the continued upward move of rents, thus making it more attractive for tenants to consider home purchase,” said Declan King, director and group head, real estate, ValuStrat Consulting.
However, the UAE Central Bank’s decision to increase the LTV (loan-to-value) ratio for UAE properties and the Dubai Land Department’s move to double property registration fees to four per cent in late 2013 has made several end users reassess their property ownership ambitions, while others were left to rent for longer while saving up larger deposits.
“During the first half of last year, we saw quite a shift of previous renters looking to buy their home. The locations did vary, depending on whether they were larger families (requiring villas) or couples with or without children,” said Mario Volpi, managing director, Ocean View Real Estate.
Meanwhile, a result of the two-pronged regulation has been a renewed focus on properties at the lower end of the spectrum.
“Many tenants have taken the initial big step in owning their first home by taking advantage of great value in areas such as Dubailand, with projects like Skycourts, Queue Point, Motor City and Remraam providing excellent value and affordability,” said Mohanad Alwadiya, managing director, Harbor Real Estate.
According to real estate agents, other locations on the radar of first-time home buyers include mature villa communities such as The Springs and Arabian Ranches and quality apartment locations such as Dubai Marina, Downtown, Business Bay, The Greens and Jumeirah Lakes Towers.
Off-plan properties are also being viewed as good value by owner occupiers. “Despite the stagnation in capital value growth and the fall in the overall level of transactions being recorded in Dubai, the off-plan sales market has for the most part retained its momentum, with investors taking a longer term view of the market,” said Faisal Durrani, international research and business development manager, Cluttons, a property services consultancy.
There has been a general stabilisation in the UAE property market after the heady inflation rates in 2013. Buyers are waiting on the fence, waiting for sales prices to fall further as new supply is expected to come onto the market in 2015. Investors are also low on confidence as they wait for international equity markets to resume growth and global crude oil prices to rise further.
“There is a general sentiment that the market will correct further, so most prospective buyers are in waiting mode or looking for distress sales,” according to Nazia Zaidi, research manager, Chestertons.
There has also been a conflict in expectations between buyers and sellers in the Dubai property market. “The stalemate between buyers and sellers is making the property market very slow. The seller’s perception of the market is that it is better than it actually is and the perception of the buyers is that the market is worse than it actually is. This difference of opinion is making transactions very hard to come by,” informed Volpi.
However, Niraj Masand, director of Banke International, a boutique real estate brokerage in Dubai, does not guarantee a further softening of residential sales prices. “All investments are dependent on confidence, and with the current situation, buyers are not too excited about taking the plunge. It doesn’t necessarily mean prices will stabilise further, but in all probability, the same buyers will pay a slight premium and purchase their home once the confidence returns.”
While risk-averse first-time buyers wait on the sidelines, the current cycle of stable property prices will be welcome news to international investors.
“We are currently at the beginning of an expected and much-needed period of stability, which makes the market resonate more with seasoned international investors, who are used to prolonged periods of stable price growth in some of the world’s more mature markets,” added Clutton’s Durrani.
But buy-to-let investors are wary, with stabilising prices also affecting their rental income prospects. According to Asteco’s reports for Q3, 2014, there has been a seven per cent quarter-on-quarter rental price drop for Discovery Gardens and International City following previous year-on-year record growth levels of 23 per cent and 40 per cent respectively. In comparison, some of Dubai’s prime areas, such as Downtown Dubai, have remained relatively stable, with Palm Jumeirah recording three per cent quarter-on-quarter growth due to restricted supply and ever-present demand.
While the mortgage cap has had the desired effect of cooling the property market in the UAE, it has restricted demand among both UAE nationals and expatriates. “The challenge for new buyers is getting their hands on the cash to start the ball rolling,” said John Steven, managing director, Asteco.
Harbor Real Estate’s Alwadiya added: “We saw 62 per cent of our clients who were considering buying a property prior to the mortgage caps delay their purchase until they can accumulate the down-payment differential while 38 per cent have settled for a cheaper property. In many instances, the former group has moved to property with cheaper rental rates to facilitate better saving rates while the latter group are likely to upgrade as soon as they can afford to.”
