Brokers and analysts are certain that Dubai residential house prices will rise next year but disagree over the speed of the property market’s recovery.
Two reports yesterday by JLL and dubizzle and by Core Savills are forecasting that Dubai’s property market will recover much faster than the end of next year, which their rival Cluttons had set as a target on Sunday.
All three brokers expect house prices and rents to rise at various points next year as the emirate’s economy recovers and construction jobs are created to build Expo 2020 infrastructure.
According to the report by property broker JLL and website dubizzle, average asking rents and sales prices in the city are 4 per cent lower than they were a year ago. However, during the third quarter they remained largely unchanged.
“While it is always hard to recognise the precise bottom of a cycle until after the market recovers again, we feel there is limited further downside potential in rentals from this point,” said Craig Plumb, the head of research at JLL, and Ann Boothello, the senior product marketing manager at dubizzle, the report’s authors.
“Trends in sales prices also provide a similar picture of the market poised close to the bottom of its current cycle with no movement in Q3 2016,” they said.
According to JLL and dubizzle, property sales prices in Dubai have fallen by 15 per cent over the past two years and rents are down by about 10 per cent.
Rival property broker Core Savills said that it had already seen an increase in sales prices in some of Dubai’s lower to midmarket submarkets.
It said that average sales prices in areas such as Dubai Silicon Oasis, Dubai Sports City, International City and Discovery Gardens had risen between 3 and 5 per cent from their lowest levels at the start of 2016.
However, prices in prime areas such as Downtown Dubai, Dubai Marina and Palm Jumeirah continue to witness marginal sales price contractions in the range of between 1 and 2 per cent quarter-on-quarter.
“The prime segment indicates further room for price softening before marking an expected uptick in 2017,” said Prathyusha Gurrapu, senior manager for research at Core Savills. “This has led some of the players to announce that the market is still at the bottom, while a nuanced analysis of the situation displays a wider spread in the real estate cycle.”
The news comes as brokers continue to report a slump in both sales and rentals at the top end of the Dubai market as senior executive jobs are retrenched and companies cut back on lavish housing allowances.
On Sunday, Cluttons reported that prices for Burj Khalifa apartments had fallen 15 per cent year-on-year and prices at The Palm Jumeirah fell by 12 per cent, in stark contrast to flattening prices in mid-market areas.
According to Core Savills, transactions for homes in the city priced at less than Dh1 million made up nearly half of all transactions in the city so far this year. It found that so called “affordable housing” accounted for 46 per cent of sales transactions – up from 38 per cent a year earlier.
Property portal Propertyfinder said that more than half of its online property searches for rental homes were for homes advertised at Dh100,000 per year or less, yet properties within this range account for only a quarter of listings.
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Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
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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.”
