Prime residential real estate will continue to drive the sentiment-driven market in the second half of the year, analysts say. A mid-year market review by Knight Frank notes the key factors that will reinforce market confidence include the UAE's safe haven status, government spending on infrastructure and development projects, increased availability of investment-grade products such as schools and hospitals, transparent processes and stronger growth projections for 2017.
According to David Godchaux, CEO of Cushman & Wakefield Core, ultra-high-net-worth individuals (UHNWIs) remain attracted to Dubai's ultra-prime property developments.
The real estate consultancy believes the market will remain steady in the second half of the year, bucking the trend of price corrections over the past 12 months in Dubai and softening prices elsewhere in the region. Godchaux says the market's resiliency will be backstopped by the long-term investment outlook of a majority of owners of prime residential real estate in Dubai.
Prime residential property will also outperform other developments that cater to a much broader segment of the population are attracting investors and funds segments as Dubai continues to gain popularity from wealthy foreign buyers. The Knight Frank report states, "On a segment split, we expect prime residential property will continue to outperform the market average in the short to medium term. Given Dubai's position as one of the top five global cities that matter to private HNWIs, based on Knight Frank's global Wealth Report, we expect the emirate to continue attracting investments both regionally and globally."
For the non-UHNWI investors waiting for prices to bottom out, analysts say there will be plenty of options this year. Craig Plumb, Head of Research at JLL Middle East and North Africa, says, "JLL still expects the residential market to reach the bottom of its current cycle in 2016, with some recovery in prices and rentals possible from early 2017."
Affordable housing
However, while residential prices are likely to continue to soften in the rest of the year, Knight Frank says it is difficult to predict when the next growth cycle will start. "We expect the residential market to level out by the end of 2016 before seeing gradual recovery in 2017," according to Knight Frank.
The launch of a number of affordable housing projects is also attracting investors and even real estate funds looking to diversify their portfolios, according to the Cushman & Wakefield CoreCushman & Wakefield Core report.
"But, we highlight the need for careful stock selection, diversification across multiple locations, active management and the ability to trade stock to maintain the overall value of the portfolio," Cushman & Wakefield Core states. "The relatively high cost of transacting real estate compared with other asset classes makes this a difficult strategy to deliver."
Godchaux adds: "While we do not believe strongly in affordable housing as a compelling investment in the long term in Dubai in comparison to other segments of the market, we still believe there are good opportunities to seize given that most potential customers in this segment are still unable to shift to ownership due to current mortgage restrictions, keeping the yields at artificially high levels."
Matthew Green, Head of Research and Consulting at CBRE Middle East, tells that much of the second half will continue to underline the same trends. "There are still further declines anticipated for the sales market, although individual project and area performances have become quite fragmented in recent quarters with certain locations outperforming the wider market average, while other areas continue to see negative sales growth.
"We expect to see similar trends prevailing throughout the year, as the market moves towards greater stabilisation and recovery in 2017."
External factors
According to Knight Frank, the real estate outlook, particularly investor sentiment and property demand, will also depend on a number of external factors, including volatility in oil prices, the US presidential elections in November and ongoing geopolitical tensions in the region.
With the UAE dirham's peg to the US dollar and the large number of foreign real estate buyers, the UAE has significant exposure to global happenings. "The UAE is clearly impacted by global economic events, with ongoing uncertainty in global markets resulting in negative sentiment in the local market, which in turn has resulted in lower investment volumes being achieved," says Green.