Property prices in Dubai rose 2.5 per cent in April recording the largest single-month increase since March 2014 as the economy recovers from the coronavirus pandemic-driven slowdown, according to a new report.
The average property price in the emirate climbed to Dh895 ($244) per square foot last month from Dh873 per square foot recorded in March, the Property Monitor monthly market report said.
“Since the end of 2020, prices have steadily recovered to record gains of 9.5 per cent in the last six months,” the report said. “However, this strong performance is not uniform across all communities, with some areas still displaying price weakness.”
The lifestyle, safety and business-friendly environment are key pull factors
The strong double-digit increase recorded in some communities is likely to slow in momentum “as the recovery switches to a more sustainable pace across Dubai as a whole”, according to the report.
Property prices in the UAE are expected to stabilise in 2021 as the economy bounces back from pandemic headwinds, driven by government initiatives to spur growth.
New programmes such as visas for expatriate retirees and the expansion of the 10-year golden visa scheme to attract foreign professionals to the UAE are also expected to support the local real estate market.
Dubai’s total transaction volumes in April stood at 4,879 deals, recording a year-on-year increase of 167.4 per cent and a 6 per cent jump on a monthly basis.
“Continuing the recent trend, there was a good volume of transactions in the high value segment of properties worth over Dh10 million. In all, 90 transactions were recorded for this segment, representing a month-on-month growth of 6.7 per cent,” the report said.
Some 81 villa transactions above Dh10m have been recorded on Palm Jumeirah so far this year, compared to 54 across the whole of 2020.
Dubai also recorded 1,926 off-plan transactions in April, up 13.9 per cent on a monthly basis and 46.5 per cent year-on-year.
“Betterhomes recorded the highest number of sales transactions on record for the month of April, despite it coinciding with the beginning of Ramadan,” Richard Waind, group managing director of brokerage Betterhomes, said.
“The extreme low interest rate environment and mortgage availability continues to drive healthy domestic end-user activity, and investors are returning with confidence, buoyed by recent capital gains.”
Wealthy Europeans clients are also buying the property in the UAE, he said.
“The lifestyle, safety and business-friendly environment are key pull factors and we think the post-Covid tax bill in many countries will act as a key push factor.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
