With scandals involving regional real estate tycoons, the recent chaos in the US housing market and the global financial crisis, people are wondering how the Middle East is going to be affected; more specifically how the real estate and property market will be influenced and whether it can retain the confidence of potential investors.The obvious truth is that the UAE’s economy is still growing at an exceptional rate compared to other global economies, making the emirates an attractive place to relocate.
New expatriates are arriving to the UAE each day looking for career development opportunities as well as suitable accommodation, sometimes with an eye to invest in property. As the buy or lease discussion heats up, what should UAE residents and new arrivals be looking for when considering their options – especially at a time when the financial crisis is spreading to the region?
Now is definitely still a good time to buy in the UAE; although re-sale for off the ground and completed units is gaining momentum over new off-plan purchases.
The shift is largely due to three main factors. First, new laws recently introduced by the government are curbing flippers and speculators from disrupting the market as well as introducing overall transparency. For instance, law 13/2008, which was passed in Dubai, requires developers to register all their units before launch with the Land Department, and only then proceed with their off-plan sales – otherwise they will be legally invalid.
Second, several developers are postponing some of their projects until there is a better indication of where the market is heading, especially with regards to financing, so there has been a slowdown in the supply of new off-plan units.
In addition, financial institutions are reluctant to give 90% financing as a result of the credit crisis making it difficult for investors or end-users to have access to affordable mortgages. Today, financial institutions are allowing between 70 and 50% financing only, some have even frozen lending.
With these points in mind for off-plan sales, re-sale is in the hot seat – at least for the time being.
Worried that prices may fall dramatically, several people have put up their property for sale – even if it is at a loss. With prices for completed property falling between 2 to 50 % (depending on the location) according to a new report by HSBC Global Research, homebuyers with access to funds should take advantage of this opportunity and buy. Prices are tempting and the market is unlikely to crash as it did in the US and Europe.
The UAE government’s aim is to keep injecting credit into the real estate market – a crash would damage the reputation of the UAE as an investment safe haven, which ranked eighth on AT Kearny’s Foreign Direct Investment Confidence Index (FDICI) last year.
In addition, with more expatriates moving to the UAE, it is unlikely the real estate market will suffer from demand. According to the Ministry of Economy, the UAE’s population at the end of 2007 stood at 4.48 million of which 3.62 million were expatriates and 864,000 were local citizens. There are reports that the country’s population is set to have grown by 6.12% by the end of 2008 to about 4.76 million and by 6.31% by the end of 2009 to 5.06 million.
If anything, the current ‘slowdown’ or watch period should be regarded not as a crash, but as a bull-market correction. In fact, the stabilization of the UAE’s real estate market has been predicted by several reports although the exact timing was not established. Morgan Stanley estimated the Dubai market will experience a 10-15% decline in prices by 2010, while other reports expect stabilisation between 2009 and 2018 across the UAE as supply matches demand and regulations are put in place.
There are certain points that need to be taken into consideration when buying a property. In the light of the financial crisis, a good credit report will get you a long way to obtain a mortgage with a good interest rate. Some banks are offering 85% finance to customers with the best risk profiles so as to avoid the mistakes US banks have made with sub-prime mortgages.
Once you have your mortgage, you have to be able to keep it, month in and month out. According to experts, your mortgage should roughly be between 2 to 2.5 times your annual gross salary, taking other loans into consideration as well.
A monthly mortgage is just the beginning of housing costs, and it is essential to understand the total extra fees. On average additional costs include: mortgage interest rate, municipality taxes, insurance, service fees and maintenance fees.
Leasing has also emerged as a strong competitor for the resale market during these challenging times – especially as prices are starting to stabilise and become more affordable to end users.
In the past 2-3 years the leasing market witnessed a massive hike in prices; for instance, rent increased between 25-60% in Dubai since 2005 according to ‘The Market: Real Estate 2008′ report by Oxford Business Group (OBG).
This was largely due to a shortage in supply and limited regulatory laws. The UAE was effectively a “landlords’ market” whereby landlords were imposing unreasonable rent increases on their property; often reaching fourfold the original price. At that time, it was more reasonable to buy than to fork out all your earnings and savings on rent. In addition, access to 90% finance from banks was more readily available.
However, the situation started to change with Abu Dhabi and Dubai governments starting to issue rental caps from 2005 and 2006 respectively, and Dubai establishing the Real Estate Regulatory Authority in 2008. These new laws started putting landlords and prices in check, and leasers were becoming more aware of their rights.
Today, end users with limited or no access to financing are opting to rent and property owners are more than happy to lease for a steady income. The symbiotic relationship is beneficial to the real estate market as it keeps the industry active.
To sum it all up, this is the time to buy off the ground and completed property in the UAE to take advantage of the discounts, but only if you have access to financing. Aspiring homeowners should make sure they take into account any hidden or unexpected costs – familiarity with UAE property laws is a plus. For those, who can’t afford a large down payment for a mortgage or the full cost of a property, then leasing is the way to go as prices fall and stabilise.
At Great Properties, we familiarise those looking to buy or rent property with all costs and procedures so there are no surprises. Sticking to laws of the country and consulting ethics are key drivers for our business, and we want to make sure we offer tenants or home buyers valuable property consultation and advise them as best we can on the most suitable option for them – we go the extra mile for our customers by being straightforward, clear and consistent which is something this market is in dire need of – especially today.
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