Knight Frank, the leading independent global property consultancy, today announces its Autumn 2014: Dubai Residential Insight Report.
Indians were the biggest spenders, investing close to AED 10.5 billion in the emirate
Among GCC nations, Saudis dominated the real estate investment activity in the emirate spending AED 3.4 billion
According to recent data from Dubai Land Department, between January and June 2014, KSA was the GCC nation that dominated the real estate investment activity in the emirate spending AED 3.4 billion, while Qataris purchased AED 1.5 billion worth of property, Kuwaitis AED 839 million, Omanis 482 million and Bahrainis 247 million.
Over the same period, the Indians were the biggest spenders, investing close to AED 10.5 billion in the emirate, while British and Pakistani nationals spent AED 5.8 billion and AED 4.5 billion respectively. The total amount invested in the emirate’s property market in H1 2014 was AED 50 billion – equivalent to 44% of the 2013 total.
Stefan Burch, General Manager Knight Frank KSA and Bahrain commented: “Saudi, the top GCC investor in Dubai, have always shown keen interest in the UAE property market due the strong economic conditions and buoyant labour markets and we anticipate this trend to continue in the short to medium term as the Dubai market continues to show healthy returns coupled with a high quality of lifestyle. With the introduction of higher transfer fees and mortgage caps, GCC nations perceive this increasingly regulated market as a safe haven for owners, tenants and landlords alike, so we expect a growth in demand in H2, especially in the mainstream residential market which is currently outperforming the prime segment.”
Why is the mainstream residential market outperforming the prime segment in Dubai?
Since the introduction of higher transfer fees and mortgage caps at the end of last year, annual residential price growth has been slowing in both the prime and mainstream segments. However, the new rules have impacted Dubai’s luxury homes market to a greater degree, with prices in Q2 2014 rising by a relatively modest 6.3% y/y. Over the same period, the mainstream segment saw a 24% y/y increase.
So why is the mid-range part of the market outperforming?
First, established, mainstream locations such as Dubai Marina remain popular among western expatriates and continue to see healthy demand and thus price growth. Moreover, newer developments such as Jumeriah Village, Dubai Sports City and Dubai Silicon Oasis are seeing the same, albeit prices here are rising off a much lower base. Thus, with demand for residential property remaining strong in both newer, as well as more established mainstream locations in Dubai, prices in this segment continue to post strong gains.
Second, the new mortgage rules implemented by the UAE Central Bank are stricter for those buying residential property worth over AED 5 million. For example, if a first-time, expatriate buyer was to purchase a property above that value, they would need to raise a 35% deposit. By comparison, the same buyer looking for a property worth less than that amount would need a down payment of 25%
Third, after halving between 2008 and 2010, both mainstream and luxury home prices have since largely reversed their previous falls. However, rents in the latter segment haven’t kept pace, which unsurprisingly has led yields to harden. By comparison, as a result of a stronger recovery in rents, mainstreams yields continue to look relatively attractive to investors.