Reforms lay a speedy recovery for Dubai real estate sector
There is reason for optimism for the long-term growth of Dubai's real estate sector as it recovers from Covid-19
The pandemic has accelerated reforms in the UAE real estate market. Measures to curb excess supply are gradually showing effect with major stakeholders collectively addressing the issue of oversupply in Dubai’s real estate sector.
Dubai saw nearly 36,000 units delivered in 2020, according to CORE’s Dubai Annual Report for 2020/2021. Significantly lower buying costs and a raft of government-led demand drivers were major factors leading to this transaction surge. After the initial slump in April and May 2020, December witnessed the highest monthly transaction volumes for the past two years.
The recently annulled requirement for some onshore companies to have an Emirati shareholder will also see a boost of foreign direct investment into the country. This, coupled with the Dubai Expo and the 50th anniversary of the UAE, is expected to boost the sentiment in the residential real estate sector.
Stable labour market
The Global Labour Resilience Index has ranked the UAE first in the Arab world and 21st globally as the most stable labour market. According to a Savills report, 30-35 percent of total enquiries received for vacant units in Dubai and around 15 percent in Abu Dhabi were from individuals who have recently moved to these cities or are planning to relocate in the future.
This bodes well for the long-term growth of the real estate market in the country and makes me optimistic that we will bounce back sooner than we had imagined.
Low down payment
During the Covid-19 pandemic, the Central Bank of the UAE announced several support measures to lessen the financial burden on residents. These included an increase in the loan-to-value [LTV] ratio by 5 percentage points for first-time buyers in the UAE (for UAE nationals and expats).
Now expats can borrow up to 80 percent of the property value as the home loan amount, while UAE nationals can borrow up to 85 percent of the property value. This regulation has made it easy for first-time homebuyers in the UAE as they need to invest only 15-20 percent of the property value as down payment.
Mortgage rates
Another reason for a speedy recovery has been the low mortgage rates in the market that currently start at 2.49 percent. Along with the lower interest rates, the UAE banks are providing payment holidays for loan holders to reduce the financial burden during the economic crisis.
Some banks also offer a 50-100 percent processing fee waiver on home mortgage. A lower down payment, along with a reduction in processing fee, has made housing deals much more lucrative.
Resilience in sale prices
Although the impact of Covid-19 has pushed price recovery further ahead, the December CORE market report reveals increased resilience in sales prices. Villa districts have particularly fared well due to the rising demand from occupiers requiring more space and open areas as they adjusted to changes in working arrangements.
For instance, Sobha Realty has doubled its villa sales in Sobha Hartland in H2 2020 as a result of a significant rise in demand for villas and garden homes. Our villas are surrounded by verdant greenery and ample open spaces and we foresee a continued demand for our offerings in this market.
In 2021, while the sales prices and rents will remain under downward pressure, a check on supply will ensure price resilience. As developers, we must restrategise and focus on absorption of existing inventory, rather than direct our energies on new launches.
With strong fundamentals and renewed business resilience, I am cautiously optimistic for a stronger 2021 on the back of efficient government measures mitigating the pandemic’s impact, easing in global travel restrictions, vaccinations for the wider public and undoubtedly the upcoming Expo 2020 Dubai.
