Experts argue that the Dubai real estate market may be the winner after the COVID-19 crisis, citing the effects of similar epidemics in the past. Julian Roch of Cavendish Maxwell stated that the real estate market in 2020 could quickly and almost without losses emerge from the crisis caused by the coronavirus pandemic.
The economic impact of past pandemics sweeping the world was determined primarily by the fact that, in each case, it was complicated by other economic factors: the end of the First World War, the rise of the world economy during technological advances, boom or the onset of a slow recovery from the global financial crisis of 2007-2008. So it was not possible to assess exactly what impact these epidemics had on the economy and the global real estate market per se.
It is known that in the 18 months since the major stock market collapses, such as the Wall Street crisis of 1987, average house prices have generally not fallen. At the same time, the main effect of the stock market collapse on real estate caused by a pandemic or other factors is to reduce the liquidity of assets held in real estate. Interestingly, stock markets have been largely immune to the effects of Spanish flu, which as a result has had little impact on house prices, especially in combination with the macroeconomic effects of the end of World War I. The UK’s long-term housing price index, for example, did not at that time record any noticeable impact of the pandemic on real estate at all.
SARS in Hong Kong also had a similarly limited effect. Since the beginning of the epidemic, housing prices have fallen by only 1.6 percent for all residential sectors and a further decline of less than 3 percent for the average property price category.
The effects of the current pandemic are expected to be a short-term shock either a very sharp fall in stock markets and the V-shaped economy, followed by rapid recovery, or a more gradual recovery on a U-shaped scale.
The experience of the past SARS epidemic shows that global economies and real estate markets are relatively rapidly recovering from pandemics, unless the latter is accompanied by other recessions, like a pandemic of Spanish influenza in 1918 and SARS in 2002-2003. Asian economies and their real-estate markets recovered from SARS quickly and abruptly within a quarter.
During the worst of the pandemic, in March 2020, forecasts from Standard Poor’s analysts predicted that housing prices in Dubai would fall more sharply than expected and that landlords would be forced to freeze their rents.
S&P has also downgraded its ratings for some major real estate companies in Dubai, citing that the current pandemic is likely to reduce international and local demand for real estate in the emirate.
As a result, housing prices have fallen markedly and landlords have had to grant rented holidays to their tenants.
In Dubai and Abu Dhabi, due to the COVID-19 quarantine and after, many tenants spent their last savings to pay the rent. March, April, and May were difficult for everyone, but governments, developers, banks, and even landlords sought to alleviate the consequences of the coronavirus crisis for each other.
For example, Dubai’s largest developer, Nakheel, waived administrative fees for various services for three months and, according to government directives, reduced central air-conditioning tariffs by 10% over three months for commercial and domestic consumers.
And the authorities and other developers of Dubai have met business and customers, taking the approach of no rent and no evictions for overdue payments to ordinary and commercial tenants during this difficult period for business and individuals.
In addition, Nakheel sent US$62.67 million to affected businesses as part of an economic assistance package that aims to reduce the financial burden on businesses and individuals.
Nakheel’s clients are property owners, renters of commercial and hotel properties, and operators of small businesses. The package also included free lease periods for developer partners retail stores and hospitality businesses that operate under the auspices of Nakheel Malls.
The Dubai authorities, for their part, eased disputes over the eviction of tenants: all tenants were exempted from eviction during the quarantine after the Government issued directives to protect them. All evictions related to the renting of residential and commercial properties in the Emirate were revoked in March and April.
Landlords of both residential and commercial premises were forced to meet tenants halfway to the monthly rate of payment.
At a time when many tenants are trying to make the best possible use of their income, advance payments are already a relic of the past.
Monthly payments through debit/credit cards will become the norm, and the governance structure of the real estate market will have to adjust to the new requirements, stated in the next report on the trends in the market of rents and sales in UAE housing in the first half of the year experts Asteco. In addition, more flexible living arrangements in terms of lease terms and more limited primary deposit requirements may also become natural for the rental market».
Within the framework of the economic incentives provided by the Central Bank against the backdrop of the coronavirus, the ratio of the amount of credit to the value of housing purchased on a mortgage and that applied to mortgages for buyers of their first home increased by 5 percent.
The deposit required for the purchase of real estate was reduced from 25% to 20% for foreign buyers of the first real estate in Dubai and from 20% to 15% for UAE citizens.
Expatriate buyers who are first-time buyers in Dubai will now be able to obtain on credit between 75 and 80 percent of the value of the real estate for objects worth less than 5 million dirhams and 65 to 70 percent of the value for objects more than 5 million dirhams. And the maximum off-plan loan increased from 50% to 55%.
For example, by first buying an off-plan apartment from a developer for 2 million dirhams (US$ 544,500), the buyer will only have to pay a deposit of 900,000 dirhams (US$ 245,000), which in many cases can be paid in installments. In the past, the buyer would have needed a deposit of not less than DH 1 million (US$ 273,000). Thus, the benefit is substantial 100,000 dirhams (US$ 27,000).
At the height of the pandemic, the Central Bank of the United Arab Emirates also launched its own financial assistance package of 256 billion dirhams (US$ 70 billion) to the sector, aimed at stimulating the economy and mitigating the economic impact of the COVID outbreak19, and reduced the indefinite deposit reserve requirements for UAE banks by half, from 14% to just 7%.
Banks have also been given access to a 50 billion dirhams fund, which can be raised at zero percent interest, so that they, for their part, can offer assistance to existing borrowers by delaying payment of principal and interest until 31 December 2020.
The date of «EXPO-2020» was postponed to 2021, but this fact did not affect people’s desire to visit, live and work in the UAE.
The real estate industry has always been and remains the mainstay of the country’s economy, and in recent years it has been undergoing a period of adjustment due to the growing gap between demand and supply.
The leading developers hurry to complete their projects before the opening of the World Fair on October 1, 2021. Delaying «EXPO-2020» can be a positive catalyst for the real estate industry, as it will help attract new investors to the market of ready-made residential properties.
The developers, for their part, did not increase the already overstretched supply sector, but instead delayed the introduction of new projects and slowed down the pace of work on existing ones in order to sell all available stocks to potential buyers in the run-up to the EXPO, A six-month mega-event is expected to attract at least 25 million people from around the world to Dubai.
Now, while these measures have not yet had the desired effect, the UAE real estate market is suffering from an oversupply of offers, as more and more of the projects under construction are nearing completion. The World Fair can therefore help to solve this key problem by providing more time for developers to sell existing residential and commercial facilities at more affordable prices.
The new trend is particularly pronounced against the constraints associated with COVID-19. Private gardens, swimming pools, and terraces are now priced. Social distance has led to demand for villas, townhouses, and hotel apartments in Dubai increasing by several points over the past few months.
The demand from potential buyers, who are willing to spend between 1 million and 5 million dirhams of UAE and more on a private house or apartment with service from the hotel, has been rising since the news of the virus. Tenants have also shown increased interest in similar housing.
The surge in demand in at least one sector has become a necessary boost for the UAE real estate market, where foreign buyers have recently dried up because of the blockages associated with coronavirus throughout the world.
Dubai South, Springs, Jumeirah Village Circle, Arabian Ranches, Dubailand, Town Square, and Mira have become particularly popular areas, with numerous villas and houses with private gardens and pools.
Another point that clearly manifested itself in the behavior of buyers and tenants of real estate in Dubai during the pandemic is the demand for finished real estate with an optimal balance of price/quality.
Buyers today are looking for affordable housing without compromising its quality, because a good quality house, in addition to the obvious advantages, will also reliably protect investments in such real estate.
In addition, self-sufficient communities with a developed internal infrastructure are also in more demand today than others, since the COVID-19 pandemic made people think that it can be extremely important not to go outside their own residential complex and have everything at hand.
Demand for finished apartments is currently on the rise in the Dubai real estate market as buyers are more confident in purchasing homes that can be moved into today.
Traditionally, in Dubai, studios and small apartments were in the greatest demand and were the fastest to be rented out.
But it is interesting that a new trend in the real estate rental sector in Dubai is a surge of interest in spacious options: villas and large apartments. This is despite the decline in incomes of many residents and the loss of jobs.
Major real estate consultants in Dubai are reporting an increase in demand for rental properties across Dubai. The tenant movement is mainly driven by those who seek to reduce their rental costs by moving to areas further away, where traditionally it is possible to rent more affordable housing, but more spacious, with balconies and open areas.
While studios and small apartments tend to be the most sought after by tenants, between March and April 2020, most rental requests were for larger apartments, especially those with terraces, verandas, and other open areas.
The changes in tenant behavior are both remarkable and obvious at the same time. Annual rentals in Dubai have dropped by about 35% for similar and sometimes more spacious housing options in less upmarket areas. Now renters are looking for a better option for their money. But recently there has also been a very specific surge of interest from family tenants looking for large villas and especially spacious apartments with balconies.
With this demand, some of the company-managed rental properties are now 100% occupied, especially in the offer of villas and large apartments with balconies. Experts say that such objects will be the first to be commissioned since March 2020.
Today, for a nominal down payment, or even no down payment at all, any Dubai resident can rent a home directly from a developer, continue to pay rent for many years and, if he chooses, end up buying it.
Now there is no need to wait for the approval of the mortgage from the banks, and it is quite possible to get an installment plan directly from the developer on the same terms or even better. Because today in Dubai, even the largest developers use an up-to-date lease scheme with the subsequent purchase of the real estate.
However, if previously lease-to-purchase schemes were used in Dubai in a targeted manner, today the whole area of Dubai South falls under this scheme, the general developer of which was the first in Dubai to launch lease-to-buy schemes in the whole residential community.
In many cases, for example, on real estate projects from the developer Deyaar, the down payment is 5 or 10% of the cost of housing, and the monthly rent is from 2.5 to 3 thousand dirhams (the US $ 680 – 816). And in the case of Dubai South, the developer does not even require a down payment.