Land sales and real estate projects drive growth in Dubai property market

An increase in new developments and land sales has helped Dubai’s property market post a strong rise in transactions and turnover in the first half of 2017, suggesting last year’s slide may have bottomed out as developments accelerate ahead of Expo 2020.

Property transactions between January and June totalled some Dh132bn ($35.9bn), according to the Dubai Land Department (DLD), a 16.8% increase on the same period last year. The number of sales rose by an even stronger 25.9% year-on-year (y-o-y), from 28,251 to 35,571.

The value of transactions in that period eclipsed the 2015 figures of Dh129bn ($35.1bn) and have brightened the outlook for Dubai’s property market after a reduction in trade in the first half of 2016.

However, prices in many market categories were more muted, with most residential property segments recording either small gains or retreats. According to real estate consultancy Cluttons, capital value in the freehold residential segment slid 0.9% in quarter one of this year, though this was a significant improvement on the 8.8% drop seen last year.

“A slowing rate of decline across all sectors of the Dubai real estate market suggests increasing stability,” Cluttons said at the release of its spring report, “with the expectation of the market ‘bottoming out’ before the end of 2017 likely as the ‘Expo 2020 effect’ filters through.

Such price stabilisation highlights the increasing maturity and resilience of Dubai’s real estate sector, which added 13,000 new residential units in the first half of the year and has so far absorbed the increase without any significant fluctuation in prices.

Investment supports increased activity

Rising transaction volumes mirror an increase in the number of new developments in Dubai’s property market.

Some 68 new real estate projects with a combined value of Dh21bn ($5.7bn) were registered with the DLD in the first half of the year, a growth that Sultan Butti bin Mejren, director-general of the department, attributed to an increase in investment from overseas buyers.

“Dubai is currently witnessing increasing interest from international investors, which has reinforced confidence in our real estate sector and its future prospects,” he said on August 12.

In a sign of Dubai’s international appeal, DLD data showed that in the 18 months to June 30, buyers from 217 countries acquired real estate in the emirate.

Real estate activity was largely driven by investors from within the UAE – who were responsible for 4510 transactions totalling Dh15bn ($4.1bn) in that period – but demand was also strong among non-nationals from both the GCC and beyond.

Investors from Saudi Arabia accounted for around 2000 transactions valued at Dh4bn ($1.1bn). Meanwhile the top five investor nationalities in the non-GCC, non-Arab category – India, Pakistan, the UK, China and Canada – spent a combined Dh28.6bn ($7.8bn), according to the DLD, a 34% y-o-y increase.

Land sales growth shows investor appeal

While prices for developed properties remained steady between January and June, the price of freehold land in Dubai jumped by 13% as developers increased their stocks, new projects launched and serviced blocks in established districts filled further.

Land sales accounted for some 8000 of the more than 35,000 transactions recorded in that period, generating Dh91bn ($24.8bn) of the Dh132bn ($35.9bn) total traded, indicating strong investor expectations for future development.

Over the past 14 years in Dubai, returns on land transactions have outperformed those for residential units by more than 50%, while property values in freehold areas have remained largely flat, according to a July report by real estate analysts Reidin-GCP.

Industry analysts say the increased demand suggests there are significant opportunities for both investors and developers to expand their involvement in the sector.

“We opine as land prices continue to rise, the balance sheet of these companies will expand,” the Reidin report said. 
“Investors wanting to capitalise on land prices would do well by currently using proxy means through the capital markets of real estate companies that have a large land bank.”

The recent rise in activity could also indicate developers are looking to boost their property portfolios ahead of the next demand wave: several forecasts suggest that the Expo 2020 event to be held in Dubai will further feed appetite for real estate, pushing up prices and boosting returns for developers with existing stock.

“We expect the transaction activity to maintain pace and accelerate as we approach Expo 2020,” said Ivana Gazivoda Vucinic, head of advisory and research at Chestertons MENA.

The increase in the first half this year has followed a significant reduction in land values over the past two years – according to Reidin-GCP, land prices in Dubai dropped by some 27% over 2015 and 2016, before starting to recover at the start of this year.

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