The COVID-19 pandemic has been causing disruption across most industries and the UAE’s real estate market is expected to face strong headwinds in the near term. Given the uncertainty around the current situation, market stakeholders are finding it hard to predict when property investment activity will return to Dubai. If the pandemic has a sustained and long-drawn impact on the broader UAE economy, it will have a cascading effect on the property market as well. The current lockdown has caused most activity to come to a halt in the short term, but property transactions are expected to gain momentum once restrictions are lifted.
If you are a prospective house buyer in the market, all things are going in your favour now. Low mortgage interest rates, higher LTVs (loan to value), reduced service charges and attractive valuations make for a win-win situation. But with the UAE seeing rampant job losses, salary cuts, uncertainty about job prospects and tightening of credit standards, it could adversely affect demand for property. So, you should only think of investing in a property if you are sure about your cash flow in the near to mid-term future.
Why is it a buyer's market
- Low mortgage interest rates
- Higher loan to value ratio available
- Affordable property sales prices
- Reduced service charges
- Attractive price valuations
- Developer incentives such as service fee waivers, free gadgets, kitchen appliances, etc.
Sales market performance
Both the rental and sales market in Dubai are expected to remain under downward pressure due to the market uncertainty. A potential contraction in income levels will make some buyers delay their decision making. Besides a drastic drop in demand, the limitations to physically view properties and conduct business are also leading to extended transaction timelines.
However, lower entry price points, attractive interest rates and the favourable loan-to-value ratio due to the increase of five percentage points for first-time buyers have improved affordability in the secondary sales mortgage market. Moreover, several developers are also offering service charge waivers for up to two years after handover, free kitchen appliances and gadgets as incentives to attract buyers in a down market. This presents an opportunity for cash-rich purchasers to take advantage of the current subdued market conditions.
"Dubai real estate has never been short on attractiveness, especially rental yields"
- Atif Rahman, Director and Partner, Danube Properties
He added: “Dubai real estate has never been short on attractiveness, especially rental yields. Even during the lowest lows, the rental return achieved in Dubai real estate is better than the highest yield one can achieve on similar opportunities globally.”
Are any transactions taking place?
Although limited, real estate transactions are happening in Dubai, even during the disinfection drive and public lockdown. The Dubai Land Department is still open for business remotely.
“The DLD is implementing online transaction services that allow for the exchanging of contracts, implementation of mortgages and transfer of titles, with all parties being witness through web-based solutions. There is particularly movement in transactions for off-plan property, where there is just a single party purchaser [other than the developer] required to make the transfer final,” said Helen Tatham, associate director of prime residential at Savills.
Which sectors will recover first?
The Dubai real estate market is likely to see a phased recovery across asset classes. Industries that continue to adapt in the changing landscape may recover first. “Sectors such as logistics/distribution and assets related to e-commerce will have benefited from the challenges faced by traditional retail outlets throughout the COVID-19 pandemic. Unfortunately, we expect hospitality, leisure and traditional retail assets to be hit hardest, particularly if landlords remain rigid and do not provide tenants with the flexibility that they require to get through the crisis,” said Strang.
According to Thomas: “Mainstream residential, office and warehousing asset classes, although impacted, are expected to show relative resilience while hospitality and brick-and-mortar retail [apart from groceries, supermarkets, pharmacies and essential services] are expected to be impacted the most.”
There is also likely to be a flight to safety, with buyers focusing on core locations and asset types; favouring security of income and value protection over the higher returns that may be gained from more peripheral locations and assets.
Relief measures so far
The Dubai Land Department and Real Estate Regulatory Agency have taken the lead to support the property market by announcing the waiver of penalties imposed on homeowners for service charge violations in 2019 and 2020, provision of flexible installments to pay service charges and reduction of service fees.
In the retail market, many developers have announced relief packages and rental incentives to reduce the financial burden on retailers. Many commercial developers and landlords are also looking at rental holidays and extended rent-free periods to help tenants. Other major developers and landlords are also expected to follow through across asset classes to maintain occupancy of their unit.
How developers are coping
Construction activity on project sites has been impacted owing to lockdown restrictions and disruptions in the construction materials supply chain.
“We continue to record new sales and enquiries though less compared to the pre-pandemic time. However, the real estate industry is not just about new transactions, it’s also about project deliveries. This is the time for all developers to demonstrate their ability to deliver improved value addition in all ongoing projects,” said Rahman from Danube Properties.
“While we need to focus on the COVID-19, it is equally important to plan life once the crisis is over. Any investment made in real estate delivers an appreciating asset. While there might be temporary cyclic value corrections, investing in real estate will always yield profits in the long run. Based on the current situation, it looks like the world should start returning to normalcy in two quarters. Once the crisis has been dealt with, the markets will bounce back immediately. A large portion of investments will be driven towards real estate,” he observed.