Dubai property prices to fall sharply
Dubai house prices will decline sharply, according to property market experts in a Reuters poll. A “slowdown in the economy and an oversupply of housing units are big downside risks to their already weak outlook”.
Reading further, we learn that developers sold record numbers of off-plan projects, leading to price declines as the supply is stronger than the demand.
Property prices have contracted by 25-35% since the mid-2014 peak. Currently, two questions are central when it comes to Dubai’s property market:
- Will property prices keep falling?
- Will prices go up or down?
Tenant market
Despite the price fall observed in Dubai property market, “70 per cent of expat residents in Dubai still rent” (Gulfnews). Most likely, expats may wait for the market to bottom out. Residential prices are expected to “stabilize and bottom out in 2020”.
Average Residential Rental Prices in August 2019
What are the average residential rental prices in Dubai? If you’re looking to rent a villa, the top 3 most expensive neighborhoods are:
- Palm Jumeirah Fronds – Garden Homes
- Jumeirah Islands
- Emirates Living Villas
While for a flat, the most expensive neighborhoods to be a tenant are:
- Palm Jumeirah Apartments
- City Walk
- Zabeel
Therefore, renting a villa in Palm Jumeirah Fronds is twice more expensive than renting a flat in Palm Jumeirah Apartments (384K AED vs 184K AED, which is 96K€ vs 46K€ per year).
Potential bank crisis?
Banks are at risk once again due to falling home prices and non-performing loans (Fitch). Several factors are alarming:
- Falling home prices
- Non-performing loans
- UAE dirham appreciation
“The ongoing slump is a stark reminder of the 2009 global financial crisis when state-owned Dubai World restructured $23.5 billion of debt and property developer Nakheel PJSC had $10.5 billion of unpaid bills.”
ArabianBusiness.com
Residential sales volume
Residential sales volume looks good, with important growth observed in the secondary market since March 2018 (PropertyMonitor.ae). However for apartments, off-plan sales are still more popular than second-hand properties.
Chinese buyers flocking to Dubai
The Chinese are flocking to Dubai to buy houses (Zawya). Although it is clear that the Chinese appetite for Dubai’s property market is rising, what is striking is the potential for much higher investments from Chinese buyers.
To realize this potential, we need to look at the United States. In the U.S., the Chinese were in 2018 the leading foreign buyers for the seventh consecutive year, purchasing an estimated $13.4 billion worth of residential property. Yet that was a 56% decline from the previous 12 months and comparatively the biggest percentage drop of all foreign buyers.
So where is Chinese people’s money going? Well, in Dubai, the trend is different. “From 2015 to 2016, there was a 16 per cent increase in transactions by Chinese buyers, and from 2016 to 2017, there was a significant increase of 64 per cent,” said Lynette Abad (Zawya).
If the Chinese are the #5 international home buyers in Dubai with 1.7 billion dirhams ($0.4 billion), this is still far from the $30 billion they spent on U.S. real estate in 2016, 2017 and 2018… Actually, this is 1.5% only. So, what if Chinese buyers spent $3 billion a year on Dubai’s property market? Well, they would become the #1 buyers in Dubai. Hence the big excitement about Chinese buyers, who are now putting Dubai on their global map of real estate investment. After all, they’re now the #1 foreign buyers in Paris…