Investor’s Report 2016 from Espace Real Estate

Skyline of Downtown Dubai with Burj Khalifa from a Helicopter. 27 May 2015. Author Tim Reckmann.

Executive Summary. The world economy is in turmoil – oil prices are approaching record lows, the stock markets are tumbling. It seems like terminal bad news from an economic and investment point of view. But it needn’t be so. Investors need safe bets for their money in troubled times, and this report lays out the vibrancy of the economy in Dubai, notably the buoyancy of the property market. Despite a recent correction in prices, Espace Real Estate has noticed an increase in activity and completions since the turn of the year, a finding backed up by a number of industry experts.

“I am optimistic about the market in Dubai!
 The correction that is being witnessed in the real estate market has come at the right time and its impact is being absorbed. In 2017 I think we will witness another hike and see growth again as we lead up to 2020.” Hesham Abdulla AlQassim, CEO of WASL Asset Management Group

“A correction in the market is just what was required – we’re seeing investors looking at Dubai as a safe haven, not reliant on oil for its economy, with steady growth forecast in real estate. The outlook is good – in the past five years, this may be the strongest opportunity for investment I’ve seen.” Peter Calamari, MD, Espace Real Estate

This investor report looks at Dubai’s economy, the impact of oil prices and inward investment from around the world. It looks at Dubai’s attractiveness to investors and buyers, and why Dubai itself provides some of the best value properties on the global real estate market. And finally, it looks at the Real Estate market over the last few years and the projections and forecasts that make Dubai such a valuable investment.

Dubai – Showing Resilience. Contrary to popular opinion, Dubai’s economy is not reliant on oil revenue. Having diversified into tourism, retail and logistics, just 6% of the revenue in Dubai relies upon oil, compared to 65% across the UAE, and nearly 90% in Kuwait and Saudi Arabia. This, allied with an economic stimulus designed to counter the tremors going through the world economy and the lead-up to the World Expo in 2020, has led to a surge in investment in infrastructure. This is expected to lead to increased demand in real estate. The Dubai government increased its 2016 budget by 12%, of which 14% was allocated to infrastructure. The evident conclusion is that oil is not the main driver of growth in Dubai, and the falling oil prices are not affecting Dubai’s economy in ways that it would across the rest of the GCC states.

Dubai – why & what you get. It is clear that Dubai has been absorbing the global economic troubles well, with a 5.1% increase in population and a 3.4% growth in GDP over the last 12 months. With no corporate taxes for most companies, no direct tax on income and no limitation on the repatriation of profits, it continues to be an attractive place to live and work. The Dubai government’s plan to create 2,500 new workplaces highlights the drive to diversify Dubai’s economy.

An international hub. This trend is backed up by analysis into airport traffic, which shows the continued growth in traffic through Dubai and projected airport traffic set to go from 78.5 million in 2015 to 103.5 million in 2020. This growth would take Dubai to being the top airport for international passengers, far beyond London and Abu Dhabi. Airline investment in marketing continues to grow in strength with sponsorship of football stadia and tournaments in the UK. Furthermore, more than 1 in 7 Chinese millionaires make Dubai their preferred international destination, according to research carried out by the Hurun Research Institute. That’s reflected in the amount of import and export trade carried out with China, which is steadily growing. China is naturally the UAE’s leading import partner.

An affordable investment. The misheld belief that Dubai is expensive is laid bare by research that shows the size of luxury property that $1m could by you around the world. In Dubai, you can buy approximately 145 square metres of property for $1m, whereas in London, you would only be able to afford 21 square metres. Monaco is even less good value for money, at just 17 square metres of luxury property. Even cities such as New York (34m2), Paris (50m2) and Tokyo (86m2) lag far behind, meaning that in terms of actually buying a luxury place to live in, Dubai is far more cost-efficient than most of the leading capital cities in the world. For the super-rich looking for luxury property around the globe, London may dominate the global market, but Dubai offers by far and away the best value and the largest amount of living space.

“Dubai never stops growing, but it is a much more mature market than, say, ten years ago, and it’s entering a phase of remarkable resilience. What is clear is that Dubai can not only offer financial security in terms of investment, but it has something that the major capitals of the world simply cannot offer – space.” Peter Calamari, MD, Espace Real Estate

Dubai Real Estate – a much-needed correction. Over the last 12 months, according to Cavendish Maxwell’s Residential Market Survey, the sale price of villas and townhouses has dropped by around 8%, while apartments has dropped by 6%. That drop eased off in the last quarter, perhaps backing up Mario Volpi’s assertion that we’ve found the bottom of the market, or we’re at least very close to it. That number tends to vary from community to community. Springs prices have fallen by around 19% year-on-year, while Jumeirah Islands prices have fallen only around 5%. That ‘quirk’ is relatively easily explained – Springs and Meadows are bound to be affected in the short term as buyers look for newer developments. They are likely to rebound once those new developments pass into ownership thanks to their well-established communities and facilities which are much more appealing to homeowners. Rents have only dropped around 3% overall throughout 2015, and many areas saw rents stay steady throughout the year, especially the prime villa communities such as Arabian Ranches.

“I see this as a much-needed correction. The market got very excited by the announcement of the World Expo in 2020, and the cooling-off measures from the government have helped considerably. New communities are coming along all the time, and we continue to see strong growth not just in them, but in the established communities such as Springs and Meadows where we are exceeding sales targets already in 2016.”. Peter Calamari, MD, Espace Real Estate

Rental yields looking up. One of the themes of the last 12 months is the increase in the rental market. Gross rental yields are generally just above 7%, which is nearly double the yield in London and close to triple the yield in Hong Kong. This can rise to as much as 10% on certain developments in Dubai such as Palm Jumeirah, according to Mario Volpi, property expert and columnist at The National. He believes that prices are close to bottoming out after the cooling measures introduced by the Dubai government. The ‘price softening’ was welcomed by many, and with rental yields as strong as they currently stand, investors are stepping into Dubai more and more for investments, especially in high-value project developments.

Conclusions. There is a general consensus that the softening in prices has been effective and that the market is picking up as a result. As 2016 continues, we forecast that prices are set to stabilize and start picking up, while the rental market will continue to grow. The high rental yields are extremely attractive to investors, and evidence that Dubai is weathering the global economic problems will be pleasing news to those looking to invest in property. Developments are coming thick and fast – the Business Bay area is developing at a rapid rate, while Dubai continues its trend to be first in everything, building the world’s first 3D printed skyscraper. A diversified economy, creating 2,500 new workplaces, and soon to be the world’s number 1 international hub, makes Dubai an increasingly attractive place to invest. With prices near or at the bottom of where they should be, the case for Dubai has probably never been stronger.