Can buyers now benefit from the development if they invest in residential real estate in Dubai during the real estate crisis? Has the bottom of the valley on the Dubai real estate market already passed?
Dubai has an international flair and is extremely popular with both business people and tourists from all over the world. It is therefore hardly surprising that foreign investors have a significant share of the local property market: they own at least 20 percent of the properties in Dubai.
Interest is particularly high among UK investors, with real estate investments totaling more than $ 8.46 billion in the past four years alone. Close behind are buyers from India, who have invested over $ 5.55 billion in Dubai real estate over the past 18 months. Pakistani real estate investments reached $ 1.9 billion between January 2016 and June 2017.
The purchase prices of real estate on Palm Jumeirah fell by 9.5 percent in 2018. The analyst Matein Khalid describes the decline in prices in the trendy district of Dubai Marina: “The purchase prices for one-room apartments in Dubai Marina fell from an average of $ 545,000 (2013) $ 272,000 – today”. According to the expert, rents in Dubai Marina have also dropped from around $ 35,400 per year to $ 20,400 per year.
However, the bottom in the real estate market may already be behind. Anyone looking to buy property in Dubai can take advantage of the ample opportunities and low prices right now: after years of recession, foreign investors have recently shown more interest in the Dubai property market.
Visa regulations are often a concern about buying your own property in Dubai. With the drop in real estate prices, long-term visas have recently been made available in connection with real estate purchases.
Investors receive a five-year visa for investments of 5 million dirhams ($ 1,360,000) or more. Investors can stay for 10 years if they invest 10 million dirhams.
“The new visa regulations give UAE residents a further incentive to invest in real estate,” said Mail McLoughlin, senior vice president of leading real estate developer Damac Properties. The developer has had more inquiries from China and other countries since the reports about an extension of the visa regulations made the rounds. The Khaleej Times recently reported a 70 percent increase in direct investment from China.
The sluggish economy should also be boosted by new, foreigner-friendly laws. A new reform allows foreign investors to retain full ownership of emirate-based companies; up to now, a local partner was required to set up the company. At the same time, against the background of falling oil and property prices and the strong US dollar, economists fear that the United Arab Emirates could drift into deflation. A considerable risk, the occurrence of which would fuel the downward spiral in the housing market.
The drop in prices can currently generate returns of between 6-8 percent. In addition, the low-interest rates make buying property more affordable overall. Mario Volpi real estate agent from the brokerage company Engel und Völkers considers buying a property to be economically viable if the customer intends to stay in Dubai for seven years or more. Otherwise, renting in Dubai could be the better option.
There is no doubt that the real estate market in Dubai currently offers opportunities and risks. The coming months could point the way for the development of the real estate market in the United Arab Emirates over the next decade. Investors who have a thick skin, the necessary portion of optimism, and expertise in choosing a property can now buy their lives on the market.
In the first districts of the Emirate of Dubai, such as the Palm Jumeirah and the equally popular District 1, prices rose six percent in the first eight months of 2020 and can be seen as early indicators of price increases. changing trends in the real estate market in Dubai. Given the volatile economic development around the world, this may come as a surprise.
Experts talk about the opportunity to study the main reasons for this development of events.
When it comes to prices per square meter, real estate in Dubai is valued more profitably than it has been for ten years. They were already very low in 2010 due to the impact of the global financial crisis in 2008. Since the valuations in Dubai are extremely low even in international comparison, there is a growing demand for buying from the owner-tenants as well as local and, above all, international investors.
As of September 2020, the UAE’s Central Bank Reference Interest Rate (EIBOR) was 0.5%, and as of early 2020, 3.14%. At the same time, the mortgage rates of local banks have increased, which makes buying real estate with borrowed capital both easier and more attractive in terms of renting out.
In parallel to mortgage interest rates, Dubai project developers are now offering much better payment terms for their off-plan properties, some of which also apply to completed properties. Whereas in 2016 an average of 6.6 percent of off-plan properties sold were offered payment plans after the completion date, in 2020 this was 28.4 percent of all properties.
The UAE’s central bank raised its maximum loan-to-value ratio by five percent in 2020 so that property buyers can now bail out 80% of the purchase price of their first property in Dubai through a mortgage.
The Emirate of Dubai has recently opened up new opportunities for obtaining permanent residence rights. In 2019, it was the right to acquire a 100% stake in “onshore companies” and obtain a “resident visa” through them.
As of September 2020, the aforementioned regulations have been complemented by a retirement visa, which will continue to drive demand for real estate in Dubai – both in terms of rental and ownership.
In summary, it can be said that the combination of low purchase prices and lower financing costs stimulates the demand for apartments and villas (residential real estate), especially among people and companies based in Dubai.
For investors based abroad, these considerations are added to the often favorable currency constellations, possible tax advantages, and Dubai’s status as a “safe haven”.