FACTORS EFFECTED UAE PROPERTY MARKET
With rental prices receding since the highest Dubai real estate market in mid-2014, many experts have voiced alarm in view of developers’ continued announcements of new projects, which ostensibly paves the way for a large over-supply and worsened price drop.
With newly revised supply predictions and population figures, the aim of this essay is to assess from now on the dynamics of supply and demand in the Dubai property market.
Side of supply: projections versus reality
Original development account-based projections showed that a total of 104,912 units would be transferred over the years 2017 and 2018 (34,127 and 70,785 respectively), while recently revised data indicated significant construction delays, which now predict implementation rates of 79% for 2017 and 44% in 2018. (source: REIDIN). Current handover figures in 2017 are not available to date. Whereas REIDIN is therefore expecting 31,266 units to be delivered in 2018, immobilien expert Jones Lang Lassalle forecasts an even lower 20,000 units to be shipped.
Dubai Supply Projection 2017 and 2018
The data imply that the difference between the prediction and the delivery actuality might add to a deficit of 46,530 or more units (JLL) between predicted and actual deliveries, in just two years.
Demand in housing units is clearly determined by population evolution in relation to occupied housing units in conjunction with the public. The latter was measured at 4.5, down from 3.9 in 2016 in 2008, which means that a population of 1m now occupies 256,000 units, up from 222,000 units in 2008. Although this declining trend has witnessed a temporary reversal since 2011, this parameter is extremely likely to not increase to its previous heights, particularly given that the vast majority of the plant pipelines now have considerably smaller, more economical units.
Based on Dubai’s population growth of 6.5% (Dr. Elessawy, UAE University) in early 2018, which is beyond the 3m mark, we may conclude that 2018 would have a housing demand of 48 750 units (net inflow of 195,000 residents at a rate of 4 occupants per unit). Given REIDIN’s (31,266 delivery units) and JLL’s (22,000 units), this would actually have already led to an undersupply in 2018.
Moreover, the Dubai occupancy rate is at 88.4 percent — in line with the historical norm, which only provides a little buffer to meet additional demand.
More carefully, it should be noted that Dubai, in particular, has an exceedingly “open” economy, significantly depending on external demand especially in the trade, construction and tourism sectors. Investors have to bear in mind that a global or financial crisis, a harsh recession or regional political issues can always disrupt the course of Dubai’s economic growth, with immediate negative effects on job markets, population and, as a result, property demand. Moreover, it should be recalled that the above migration data include the labour sector whose members are accommodated in staff accommodation not covered by this article.
Because of the overall downturn since mid-2014, rental prices have gradually dropped across all quality segments and locations in Dubai.
With lower housing generally and rents generating more demand in particular – both from overseas and from neighbouring Emirates in particular – we are most likely to witness a surge in Dubai’s population figures compared to the long-term average.
Additionally, increased public expenditure, the ongoing rebound of oil prices and the devaluation of the US dollar-stocking AED in comparison to major currencies – particularly the Pound and the Euro – will generate additional stimulation and will significantly stimulate external demand and economic activity in the UAE and Dubai in particular.
With this in mind, the International Monetary Fund projects that the UAE is growing by 3.4% in 2018, a value that is anticipated to be overtaken by the economically diverse Dubai centre. Furthermore, 86 percent of respondents claim to employ new employees during the next douze months in the commercial sector of the UAE (Bayt.com Middle East Job Index Survey, February 2018).
In that respect, in the absence of remarkable external events and of data on supply and demand, the likelihood of an extended decrease in the property market in Dubai looks to be small.