Finding value-for-money deals in Dubai real estate

Finding value-for-money deals in Dubai real estate

Gulf News, 7 November, 2018

It’s the perfect time to shop around for value deals in Dubai’s real estate market with property price valuations at their most attractive. Investors are taking the correction in prices as an opportunity to buy good properties at competitive prices, in prime locations with excellent views and well-maintained. For many homebuyers, there is indeed a lot of value-for-money options, but finding the right ones can be a challenge.

It is important to look at the market from a long-term perspective to truly understand the value and strategic importance of the current phase of the market, says Pawan Batavia, CEO of Synergy Properties. “The long-term story on the Dubai growth, with the current infrastructure, spends, Expo 2020, the changes in rules recently, will surely have a very positive impact on the overall situation at a macro level,” says Batavia.

Dispersed demand

While property prices have been going down, Riyaz Merchant, CEO of Realty Force Real Estate Broker, says the market has generally reached its bottom. “I don’t see it moving down except in case of distress deals where there is a need for owners to encash or exit due to their circumstances or financial needs,” says Merchant. He sees the demand being dispersed into different areas, creating a fairer and more competitive market based on people’s personal preferences. “The market as a result is on the rise; we are no longer at the bottom and must now assess markets in more detail, based on projects,” says Merchant.

“This is probably the best time to enter the market and make the plunge for homeowners as master developers like Emaar and DP have made it easy with long post-handover payment plans, and waived service and DLD registration fees. This has made it easier for an end user to take the plunge without having to be worried about mortgage and interest repayments.”

He adds: “Dubai also offers spectacular views that no homeowner can get anywhere, the fees to register their property are much lower and they are not paying unjustifiable property taxes.”

Comparing Dubai with other global real estate markets, Merchant says there are clear advantages here for investors looking do diversify. “For the investor, income is tax-free and the returns offered in Dubai are unrivalled by international markets,” says Merchant. “In London, their income would be taxable and their returns maybe 7-8 per cent before taxes and 3-4 per cent after taxes.

“Dubai laws are so strict that tenants here rarely default on rental payments, whereas in other markets it is prevalent and the costs incurred to get the tenant out can lower the average 10-year return from 4 per cent net to 2 per cent in cities like London or Mumbai.”

With Expo 2020 Dubai now just less than two years away, Merchant says the market also becoming active with the delivery of new projects and communities. “The investors are now coming back,” he says. “District One, Dubai Hills, Millennium Estate and Grand Views in Meydan are the best communities and will continue to flourish in the years to come. It’s the new epicentre of Dubai and you can’t go wrong.”

Gradual revival

After a period of off-plan incentives and post-handover payment plans where off-plan transactions comprised nearly 70 per cent of the market last year, Dubai is starting to see a recalibration towards the ready market, and one where there is sensible demand for mid-range properties, according to Sameer Lakhani, managing director of Global Capital Partners.

“The communities at the top end that have borne the brunt of the correction, such as the villa segment in general, have started to see a revival in demand as measured by transactional volume,” says Lakhani. “Real estate markets move slower than equity or fixed-income markets, and still face headwinds in the form of higher interest rates, but it is encouraging to see that on the demand side, there appears to be a gradual revival.”

On the supply side, analysts continue to systematically overestimate the pipeline by as much as 50 per cent, says Lakhani. “This implies that smaller developers have been struggling to meet their supply commitments in light of the incentives that have been offered by their larger competitors, while stricter guidelines by the regulators imply that there is further consolidation that needs to transpire,” he says. “Both these variables indicate that there will be further contraction of the supply pipeline in the coming year or so, as project launches are down 30 per cent on a year-on-year basis.”

He recommends a good yardstick for the right deal would be to compare market values to the replacement value — what it would cost to make the same unit given current prices of land and construction.

“In the boom days, the market value/replacement value ratio for the city was around 1.4-1.5; in luxury communities it was above two,” says Lakhani. “Currently, there are a number of communities where the market value/replacement value ratio is below 1.2 and in some cases is approaching 1.

“This is perhaps the strongest indicator of value for both the individual as well as the institutional investor. Comparing market values to their replacement values is an indicator of whether and by how much the supply pipeline will increase or reduce. If the market value is less than the replacement value, it indicates in the sense that there is no incentive for developers to sell; it also means that money will start to enter into areas as investors grab these opportunities.”