Why buyers are now entering the UAE property market

Shrewd investors cashing in now could be an early signal of a recovery, says Peter Cooper


Dubai skyline as seen from Atlantis, The Palm.

(Photo by Reem Mohammed/The National)

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Two old friends contacted me for a chat about buying property this week. This time, however, they were actually doing it and not just talking about it.

The conversation was more along the lines of whether you should ever issue a cheque before signing a MoU (no, is my answer) than theorising about the prospect of a recovery in house prices. However, this was my first experience of what could potentially turn into a Spring recovery.

Perhaps I see this as more significant because I know both the buyers reasonably well and would judge them shrewd investors, although they are both entering the market for their own use rather than buy-to-let. One is an older professional investor with multiple properties in different countries, the second is a smart, young e-commerce guy who is tired of paying rent.

In my four decades of experience of housing markets – my father was a small developer and I’ve been a property writer for 30 years in the UK and UAE – this is exactly the sort of early activity that you later recall as important: the smart guys buying while prices are on the floor, before they really take-off.

Of course, you don’t have to look far for gloom and doom stories, but as we all know what you read can often be misleading.

It's not as though UAE authorities are without means available to them if they want to encourage a market recovery.

Only last week, federal legislation was cleared for the first five-to-10 year residency visas for investors, entrepreneurs and scientists. That should attract more up-market house buyers.

The UAE’s zero-tax regime is also particularly attractive for high-net-worth investors at a time when wealth taxes are on the increase in many countries, with one study suggesting a net gain of 5,000 high-net-worths into the Emirates last year.

Retirement visas for those over 55 years of age are also in the pipeline and advertised on government websites, but they are yet to be issued. This will stimulate demand in the more modest Dh2 million-plus home market.

More controversially, there is the possibility of reducing property transaction fees to the original 2 per cent from the present 4 per cent to boost sales. There are also whispers of mortgage caps that currently impose higher deposits on home loans being lifted.

Usually the revival of the buy-to-let market follows behind the end-user brigade, who are often as keen to bag the right property in the right location as to secure the cheapest price.

Again, there has been a lot of discussion behind the scenes about reforms that would make renting homes more attractive to landlords. Presently, the long period required to obtain vacant possession – up to two years – and rent controls can put some would-be landlords off this investment class.

A new UAE federal charter for fair rental property management could address these issues. And by making investment in property more attractive that would boost the pool of available property, most probably lowering rents at the same time.

Both my friends now in the process of buying a property highlighted just how cheap Dubai property was in relation to similar global trading hubs such as Singapore and Hong Kong, where apartments in central locations are unaffordable to all but the super-rich.

These are now mature global property markets but went through generational price crashes before reaching this status: Singapore in the late 1980s when commercial property was overbuilt; and Hong Kong after independence in 1997, when apartment prices crashed by 70 per cent to bottom out in 2002.

The UAE had its nemesis in the 2009-10 property crash but nobody expects such a cycle today. Will its prices one day match Hong Kong and Singapore?

Given the large, tax-free salaries of the UAE and the influx of global wealth in recent years, it is actually somewhat strange that rental yields are so comparatively high and house prices so low. My opportunistic friends might be a little premature in entering the market but they won’t be far off the bottom of a market with a huge potential upside.

Peter Cooper has been writing about finance in the Gulf for two decades