The big picture of Dubai property recovery.

In 2012, Dubai overtook Hong Kong as the world’s second busiest airport, with 58 million visitors visits to Dubai airport. Of these passengers, 20% of these visit the city of Dubai. The flow has given a big impetus to tourism, hospitality and retail sectors. As a flow on, this also created opportunity for the local real estate industry.

The city is embarking on yet another growth cycle in 2013. However what makes it different to before is that is has a larger diversified economy both here and in the surrounding region, for which the city is a commercial hub.

Higher liquidity and projected growth has encouraged banks and developers to work on new improved products. For example, Damac is planning to open to public shareholders in an IPO, and is looking for potential underwriters. If this happens it will be a major boost to the IPO activity on the Dubai Financial Market. Emaar launched MIRA in April, with the first phase of 188 units released to an eager crowd of buyers. Indeed, Emaar has hit its stride with the market, with 1000 units pre-booked in launches so far this year.

The backdrop to this activity is the price appreciation in 2012. Prices have kept rising for 16 consecutive months by March this year. The total Q1 price growth was 6.1%. Dubai Marina rose by 16.5%, Downtown grew by 5.8% and JLT saw a rise of 20.7%. Despite the market recovery, the prices are far from the heights of 2008; apartment prices remain 43% below peak and villa prices remain 12% below peak.

The price growth could have been tampered by expected supply of new property. However delays and bottlenecks could reduce supply. Only 2200 units were supplied in Q1 of 2013. Most estimates expect the supply to be 12,000 every year over next three years. Total transactions in 2012 were 18,300 and 2013 could expect as much as 22,000 transactions. This number will grow in coming years.

These factors have forced more and more banks to enter the mortgage market. Since the banking sector is carrying a liquidity of AED 1.12 trillion, there is a downward pressure on interest rates. The impact was felt by Tamweel, the biggest mortgage lender in the country. High cost of funds forced it to be taken over by DIB, the largest Islamic bank in the city. However, low interest rates are good news for mortgage based end-users

Author: Sam Wani MBA(Leicester) Cema(Leeds), Certified Mortgage Advisor, FSA-UK
General Manager, INDEPENDENT FINANCE