Dubai property market looks to potential rebound

While the first half of 2016 saw property values fall in Dubai’s real estate sector, strong fundamentals and consistent demand from foreign buyers suggest they may flatten out in the second half before turning upwards in the lead-up to Expo 2020.

Row of hotels in Dubai

Data issued in September by the Dubai Land Department (DLD) showed the total value of transactions at Dh113bn ($30.8bn) in the first half of 2016, down 12% on the same period a year earlier. In the prime residential segment, long a mainstay of the Dubai market, the value of sales fell by 35.3% year-on-year (y-o-y) to Dh1.1bn (299.5m) while the price index dropped 5%.

Sales volumes, however, were far more positive, posting 22.8% y-o-y growth to reach 28,251 units – a possible sign that investors expect prices to rebound in the medium term. Activity also held strong over the summer, when transaction volumes typically slow – DLD figures show some 15,500 trades with a combined value of $16.4bn registered in June-August – indicating the market has the potential to reverse its recent decline.

Signs of flattening

In the apartments segment, prices or rents recorded no change between the second and third quarters, according to real estate consultancy JLL, although villas saw reductions of about 1%. While y-o-y comparisons of prices and rentals still show respective net decreases of 2% and 4% for apartments and 2% and 6% for villas, the firm suggests these portend a bottoming-out.

In the office and retail segments, too, rental prices remained unchanged, though average daily rates for hotels – buffeted by a strong US dollar and low oil prices – fell 11% to $191 per room. JLL expects room rates to continue falling in the near term, but maintains a positive medium-term outlook for the segment as the tourism sector receives a spending boost in the run-up to Expo 2020.

Business consultancy Deloitte similarly sees prices continuing to drop in both the residential and hospitality segments, albeit at a slower rate, through to the end of 2016, according to its September review of the Dubai market. It attributed this to market maturation and adaptation to changing customer demands. In recent years, the residential market has focused on more affordable projects, while the office segment has seen a trend towards smaller deals.

A further report, issued in September by real estate consultancy Knight Frank, interprets the recent lower-price environment as a flattening rather than a recession. “While there has been much talk in the market about a dramatic decline in residential prices, akin to that witnessed in 2009,” it read, “we believe the real estate market is better situated to face any potential threats.”

However, the company also cautioned that “further volatility in oil prices, the US presidential election and ongoing geopolitical tensions are likely to impact the behaviour of currencies, investor sentiment and consequently the demand for property.”

Support system

Among the factors underlying the market’s greater resilience is government commitment to infrastructure spending, both in Dubai and across the UAE.

Projects such as the extension to the red line of the Route 2020 Metro and phase two of the Etihad Rail project linking Dubai and Abu Dhabi – which was delayed in January, but is predicted to be operational by 2021 as part of the GCC rail network – are likely to have positive knock-on effects for the real estate market, such as improving road congestion.

A further positive factor, according to Knight Frank, is property developers’ realisation of the need to phase out projects in line with demand so as to avoid oversupply. Other stakeholders, meanwhile, point to an oversupply in the near term, with Matthew Green, head of research and consultancy at CBRE UAE, telling media that the market has a “propensity for any oversupply period”, which could happen “relatively quickly” as a result of Expo 2020 driving strategy.

However, solid numbers of high net worth investors entering the market and looking for long-term capital appreciation should sustain the sector and drive growth in 2017.

“I think the worst is over,” Ali Rashid Lootah, chairman of Nakheel, a Dubai-based real estate developer, told international media in late October. “Dubai is growing, we are seeing signs of more inquiries – serious inquiries – and I think that’s a sign of recovery. The market is maturing, we are seeing more serious, cautious investors, not speculators.”                                    

The realisation of such forecasts would be good news for Dubai’s economy, particularly as the real estate and construction sectors account for a combined 22% of the emirate’s GDP, according to the Dubai Statistics Centre.

Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In UAE: Dubai

Key takeaways from a new white paper on start-up funding in Dubai

Dubai is seeking to stimulate growth among the emirate’s start-ups with the release of a white paper outlining solutions to improve access to funding, offer greater support and build investment...

In Real Estate

The entertainment and leisure developments driving Kuwait’s real...

Kuwait has continued the expansion and diversification of its real estate sector, with progress being made on a series of new mixed-use and entertainment-focused developments.


Covid-19 and Latin American agriculture: can innovation overcome the...

Although the coronavirus pandemic has created significant challenges for the Latin American agricultural sector, it has also created opportunities for innovation and the expansion of home-grown...