5 concerns for Dubai realty sector in 2016
By Ahsen Ghufran Khan
Unlike what many analysts had forecast, Dubai’s real estate sector was not flooded by an unwanted supply of housing units, which were expected to unleash an uncontrollable price slide in the market.
The sector proved rather resilient in 2015, with prices dropping between 10 and 15 per cent, while rents stayed stronger, even unaffordable, according to certain observers.
But the falling prices and corresponding strength of the rental segment meant that apartment yields in the emirate rose to as high as ten per cent in certain areas and remained above the seven per cent mark on average, according to property portal Bayut.com, which said high yields kept investors more than interested in the market.
As issues like low oil prices, currency fluctuations and regional security disorders – carried forward from 2015 – continue to weigh on global economy, let’s take a look at the challenges Dubai’s real estate sector is likely to face in the ongoing year.
Liquidity will be a key concern for investors looking to profit from Dubai’s realty sector. The slowdown in China and the interest rate hike in the US mean that there will be a lot less capital going around in the global market.
With many governments finding themselves unable to inject liquidity into the economy in face of a general slowdown, banks are finding it harder to hand out loans and, subsequently, much less money will be available to property developers, construction companies and even individual investors.
Though Dubai has hardly been affected by the low oil prices (95 per cent of its economy is non-oil), the reduced revenues of oil-exporting countries have resulted in spending cuts by their respective governments.
Investors from oil-rich countries like Russia and Saudi Arabia, who have traditionally been big spenders in the Dubai realty market, are likely to continue taking a hit. The luxury segment of Dubai’s real estate sector is likely to see a reduced demand from such big spenders and, subsequently, a temporary decline in prices.
Delays and changes
Players in the sector could face potential delays in project deliveries owing to the strain on the finances of developers and construction companies. However, a silver lining remains: the market will not have to worry much about unit oversupply.
Function and affordability
With the city’s population rising, the demand for affordable housing has gone up as well. Although demand for luxury holiday homes and upmarket apartments will persist at a lower decibel, the need for affordable housing is developing fast.
Developers and investors will need to turn focus on this segment with new supplies or by altering existing buildings to suit the needs of middle-income families.
Following the tragic fire at the Address Hotel on New Year’s Eve, building safety is being focused on more than ever. This could mean that major developers and landlords could find themselves having to upgrade designs or refurbish fixtures and fittings to conform to stringent safety regulations. The moves could require extra cash and coming up with the same in times of constrained capital could become a daunting task.
Ahsen Ghufran Khan is a real estate analyst at Bayut.com. The views expressed in this article are the author’s own and do not necessarily reflect AMEinfo’s editorial policy.