Prospects for 2014 : Dubai Residential Market

Harbor expects 2014 to see continued growth in the residential segment of Dubai’s real estate industry and there are some fundamental factors which lead us to this conclusion -Dubai’s : economic growth for 2014 is expected to exceed 5 and maintain or even exceed this level leading up to the year 2020. The global economic recovery which, according to the IMF, is gathering pace and expected to deliver in excess of 3% growth. Given the amount of foreign investment in Dubai, a healthier world economy can only be beneficial.

The market is benefitting from a bow wave of demand as the broader economy stages a strong recovery. Granted, prices have been growing generally at around 20+% yoy, more in some areas, and there are renewed concerns regarding asset values. But remember, some areas lost around 60% of their values from the highs of 2008. The recovery has been underway for two years
now and the market is still around 22% shy of the highs reached five years ago. This would suggest the market still· has some way to go before a broad based major correction occurs. Increasing momentum, which is emanating from
renewed confidence in the emirate among business operators and investors alike.

This confidence is not just predicated on the stellar financial performance of real estate assets over the preceding two years, but also on the significant progress that the emirate has made in emerging from the global financial crisis including real estate regulatory reforms, successful debt restructuring and record levels
of economic activity in the non-oil economic sectors.

The increasing maturity of the marketplace as evidenced by the determination of real estate authorities and stakeholders to prevent the creation of unrealistic asset values driven by excessive speculation and irresponsible lending practices. The increasing levels of governance, over- sight and scrutiny that the industry is
experiencing are driving confidence back into the industry. The ongoing
development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, reveals a mature and balanced approach to
shaping an industry which exhibits sustainable growth over the long term. The “free for air days of the past are long gone and investor, not speculator, confidence has been making a big comeback.

There will be an increase in supply of residential units, with over 20,000 residential units expected to be delivered in 2014, predominantly in the more affordable areas such as Dubailand, Silicon Oasis and Motor City. This new supply of affordable housing will be good news for those who have been seeking
relief from the recent rent hikes and lessen demand for the higher priced areas. There will be a number of new developments launched and stalled developments restarted. While most are not expected for delivery until 2076 and beyond, these developments provide an alternative for investors who would have the Dubai
2020 World Expo as a key milestone on their investment time horizon.

The inevitable increase in the US dollar and, therefore, the UAE dirham. With the gradual withdrawal of economic stimulus by the US Federal Reserve, a likely strengthening of the US dollar will inevitably make investment in Dubai real estate by foreign investors appear more expensive. For example, the dramatic weakening of the Indian rupee versus the US dollar, and therefore the UAE Dirham, must have an effect on the demand emanating from that country.

Whether a strengthening dirham leads to reduction in price of  imported construction materials and whether any such reduction is passed on to consumers is another matter. So, in summary, we envisage a Dubai real estate market in 2074, which will undergo the initial stages of value/price normalization yet still provide robust value growth and rental yields based upon sound economic fundamentals.

We will also witness an increasing level of resilience, sustainability and stakeholder confidence as the market continues to rake important steps towards full maturity through the ongoing development of policies and practices and effective oversight and governance.



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