Dubai could be considered the New York of the Middle East, with towers equipped with luxury amenities and superior business facilities. The deeper-pocketed property market is dominated by Indians, Pakistanis, and British––in that order. The United Arab Emirates (UAE), undoubtedly, has it problems, but Dubai seems to rebuff them and grow. “My confidence in this city will not fade away,” says Faizan Khan, senior associate of the Durise Group. One million dollars will easily buy a 15,000-square-foot property in Dubai, versus one of merely 270 square feet in London, or 430 square feet in New York.
UAE Market Outlook
The Organization of the Petroleum Exporting Countries (OPEC) reported that crude oil settled down 60 cents, or 1.1 percent, at $51.81 a barrel. In post-settlement trade, it fell to as low as $51.61. You’re seeing an overpriced and oversupplied oil market that’s dropped in value since 2015. Standard & Poor’s rating agency indicated that oil prices will push Saudi Arabia’s economy to record deficits to at least 2019. That’s not good news for investors who are eyeing high-quality property in the UAE, since the Gulf Cooperation Council (GCC) countries in general, and Saudi Arabia in particular, rely on oil as a source of revenue. Indeed, agents have noted a correlation in decreased oil prices and interest in investing in property in the UAE. Inflation has more than doubled from last year to about 4 percent now, raising the cost of living in the kingdom and hurting its middle class.
Oil ties in with the economy, which impacts government funds. During the Dubai financial crisis, from 2008 to 2010, government funds in local banks helped tide the country over an economy that showed far more export than import. However, from 2015 to today, low oil prices and a fiscal deficit have led to less government cash holdings in local banks, which means less credit to finance real estate investments. Worse still, the government has been forced to withdraw some of its already meager deposits to overcome the deficits. That’s the case in Saudi Arabia.
Higher Interest Rate
The Federal Reserve raised its interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, which means that UAE banks will raise their interest rates, too, since the UAE dirham is pegged to the U.S. dollar. Higher interest rates denote less credit for prospective investors.
Geo-Political Situation in the Middle East
Prospective investors have little to comfort them about the Middle East security situation. There’s the crisis in Syria that threatens to spill over to neighboring countries. And then there’s the threat of inbred terrorism, all of which leads investors to shy away from investing in the region.
Very few of these issues have affected Dubai. Khan says, “Dubai did suffer from the economic crisis nine years ago that brought the world to a standstill. Fortunately though, due to the strong confidence level of local and regional investors, as well as a lot of perseverance and patience, the situation turned around.”
The UAE, in general, and Abu Dhabi, specifically, may be impacted by the ongoing oil crisis, but Dubai gains less than 10 percent of its revenue from oil and most of it from tourism. And in that sector, it’s doing splendidly. In fact, according to the World Travel and Tourism Council (WTTC), the tourism sector added about 8.4 percent of GDP (117.4 billion dirham) to the Dubai economy in 2015.
Today’s Dubai is known for its splendors. Projects that draw tourists include the “world’s largest” Ferris wheel, glow-in-the-dark garden and indoor theme park, aside from its fabulous shopping malls, five-star hotels, and beautiful beaches. Business in Dubai comes from the logistics, business sector, and tourism, so real estate is less affected by an oil-battered economy than are other parts of Saudi Arabia. Dubai tourism increased by 2.19 percent in October 2015, and it’s still growing. Thousands of tourists disembark each week, and Al Maktoum International Airport is poised to become the world’s largest duty-free airport. In September 2015, Dubai Airport recorded the highest airport traffic in the world––much more than airports in London and New York experienced.
Since the introduction of foreign ownership in 2002, investing in Dubai continues to interest international investors, according to Robert Villalobos, managing director of Prestige Dubai. There is the ever-growing population, with over 200 nationalities and two and a half million citizens, expected to reach three million by 2020, so there is constant demand for housing. Rental yields are still among the best compared to cities like London and Hong Kong. “Yields in Dubai for residential investment range from 7 to 10 percent,” says Jason Hayes, managing director of Luxhabitat. “By comparison, you would be lucky to get 3 percent in London. Twice the rental yield returns can be achieved when compared to other major international cities.” This is also due to the fact that Dubai attracts planeloads of workers from all over the globe.
The buying and selling procedure is enormously simple and systematic. Government documentation and registration takes less than a couple of hours, and you don’t need to be a UAE citizen or even possess a residency visa to invest in a free zone. “Foreigners tend to invest in commercial properties and residential units in Dubai, then lease the property out, which gives them excellent ROI and a chance to enjoy the luxury lifestyle of UAE when they return,” says Faiza Hyder of Greenhouse Real Estate Dubai. Moreover, if you buy a property in UAE that exceeds 500,000 AED, you are eligible for a residency visa.
Fear of terrorism may be growing in the rest of the UAE, but many agents consider Dubai to be one of the safest and most secure cities in the Middle East and North Africa regions because of its stable government and political solidity. Additionally, buyers who purchase a property in Dubai over 1 million UAE dirham can apply for an investor visa, which grants them residency. Then again, Dubai is a tax-free city with no income or capital gains tax. Not only is there no property tax, only a one-time government fee, but you don’t have to pay income tax. According to Hayes, “The friendly tax jurisdiction makes it a welcome destination for investors with no capital gains tax to pay or indeed corporate/income tax on operating profits from rentals.” Payment plans are competitive due to available variety and competition of investors. Investing in off-plan property is particularly attractive to end-users and investors, since capital appreciation on off-plan units, (depending on location) tends to increase handsomely by handover stage. Hayes commented that capital appreciation is strong in Dubai, with the market having turned and demand still outstripping supply. “We envisage healthy year on year’s growth in terms of capital values over the short to medium term,” he notes.
Ian Kirkby, director of luxury sales at Gulf Sotheby’s International Realty, also mentioned Dubai’s pleasant year-round sunshine (with only three months of summer heat) that further enhances the appeal of the region, as well as the World Exhibition of 2020 that will draw job-seekers, businessmen, and large companies to Dubai, to cash in the revenue expected from visitors. Dubai expects over 20 million tourists that year, which is about eight million more visitors than now. Employment opportunities will rise. The Expo will launch about 369,000 job openings by the end of 2024.
The biggest advantage of investing in real estate in Dubai is the ROI. The average ROI in Dubai is 7 percent to 8 percent and can go up to 12 percent, in some cases. “Today, we are seeing investors from around the world enjoy the benefits of lenient visa regulations, political stability, and great returns on investments,” says Khan, who adds that recent numbers have revealed that the average price index of real estate in Dubai has begun to increase within the last quarter.
Rising Opportunities For Investment
Real estate prices are down in Dubai, quality homes saturate the market, and demand for rentals continues despite the economic slump, making this the ideal time to invest in Dubai real estate. Tourism and general government policies make the area particularly attractive. Dubai’s political stability assuages terror concerns, while credit continues to be good. The Dubai Multi Commodities Centre (DMCC) helps Dubai retain its edge as the largest exporter of tea and diamonds. Unconfirmed reports say that Dubai exports more than $30 billion in diamonds. Dubai has always been an attractive market for global labor, which presents a higher yield. “Dubai has successfully positioned in itself as the international business hub for the region, and the city continues to evolve, offering residents and visitors a plethora of things to do and see,” says Hayes.
Hayes continues: “The properties here are well-designed, well-built, and form part of a fantastic master-planned city. Properties acquired here are held freehold and there exists proper frameworks for the onward sale and funding of those properties. If organizations and businesses operating in the region do not have a presence here in Dubai the question tends to be why not?” he suggests. “Dubai is a maturing market with established asset management and leasing management functions, allowing investors the opportunity of outsourcing their property management functions.”
Kirkby adds, “With the continued growth of the Dubai population and ever-expanding business community, Dubai’s residential market is set to continue to grow over the coming years.”
Images courtesy of Luxhabitat / Sotheby’s International Realty
This story is featured in the Winter 2016/Spring 2017 issue of Haute Residence magazine.