“In other markets – Britain, Australia, India – you would be happy with 3% to 4% yields. In Dubai, you are looking at a minimum ROI of 7% to 8% in a good location by an established developer”
The Grid: As the Editor-in-Chief of Property Time, could you share your insights into the Dubai property market at present?
Binesh Panicker: You can’t generalize about the Dubai real estate market. It is going through a unique situation right now, different from the past. Growth is not happening across all segments – luxury, mid, low-end – the same way.
Some investors focus on the luxury segment others on affordability. People focusing on the affordable segment are doing pretty okay. This is validated by the fact that developments such as Nshama won recognition at the first Gulf Real Estate Awards 2017 by the Dubai Real Estate Institute (DREI) this April. People are price conscious. If you look at the new projects coming up, it is developers like Danube launching new projects because their previous launches have sold out.
The Grid: How is this unique?
Binesh Panicker: Where else do you get payment plans asking for 50% before hand over and 50% after? In fact some payment plans ask for an initial payment of 30% over 6 months while the rest is due on completion. From an investment perspective, you are paying out a maximum of 30% and covering the remainder (plus some!) with rental income.
In other markets – Britain, Australia, India – you would be happy with 3% to 4% yields. In Dubai, you are looking at a minimum ROI of 7% to 8% in a good location by an established developer. Some developers in fact are offering guaranteed returns of 11%+ (e.g. Jumeirah Village Circle), which is incomparable.
Then there are the ‘traditional’ property locations in Dubai: downtown, JBR, Palm Jumeirah. These places yield moderate to decent returns but their capital appreciation rates are higher. Looking at the data, Palm Jumeirah witnessed a decline of 3% in sales prices 1Q17-to-1Q16. However in the affordable segment, JLT saw a 5% increase and Dubai Sports City gained 6%. So you can’t say that Dubai real estate is experiencing the same trend across communities. That is not happening.
The Grid: Which segment or location has been most impacted?
Binesh Panicker: Generally across locations, villas have felt the biggest hit in terms of price tag, unsurprisingly. In a historical context, villas are still not cheap. Prices are going down gradually in single digits, however. Villa prices in Arabian ranches and Dubai Sport City (e.g. Victory Heights) have dropped 4% in the same period.
The Grid: What started this trend?
Binesh Panicker: Mainly economic drivers. Even though the price of oil does not have a direct impact on the Dubai economy, it does on the income of investors. A good example of this is the change in Russian investor trends post 2015, when the price of oil fell below production cost in Russia. Before that, Russian investors come to Dubai investing in everything including real estate and jewellery. After, a lot of them simply vanished.
These are types of investors who choose to invest when they have excess money and foresight into future income generation so they can be confident of meeting future payments. Since this dynamic changed, those people thought twice before making their usual investments in Dubai real estate. At moments like that, investors revert to a basic instinct – preserve cash in bank accounts not foreign investments. That is what impacted the Dubai market in 1Q16, when the Dubai Land Department reported a 50% drop in daily transactions.
The Grid: Why is the price effect variable across communities, i.e. higher in some and lower in others?
Binesh Panicker: When new businesses are registered or licensed in Dubai, it naturally has a positive impact on the rental market. The same can be said in the opposite direction as well. Last year a lot of people lost their jobs. In sectors that were not reducing headcount, they were neither increasing it. This had an impact on the real estate market as well. Typically a big investor buys fifty apartments with the primary interest to generate rental income (capital appreciation comes later). So when and where rental demand is rich, more investors are interested.
This is an extract from an interview with Binesh Panicker, Editor-in-Chief & Co-Founder, Property Time
Property Time is Dubai’s leading magazine dedicated to the emirate’s ever growing real estate sector, which attracts investors from all over the world. The firm also owns a property search and review portal www.propertytime.ae
Interview by Tasneem Mayet, Research Director, The Grid Media Ltd
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