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Dubai residential market – 2016 Performance & 2017 Outlook

Dubai’s residential and hospitality markets are currently at a cyclical trough suggesting the transition towards a more mature and robust market. Facing global volatilities and headwinds coming from geopolitical disturbances, US elections, Brexit, persistently low oil prices, the market has proven relatively stable showing the first signs of recovery, which will most probably become evident in 2017.

The REIDIN general index for rents and sales for Q2 and Q3 of 2016 was on a standstill showing a rebalancing after the shockwave of the Brexit vote, which left the market in uncertainty and turmoil, while the region was grappling with oil price instability. It hasn’t been noticed any major changes in either rents or prices in the apartment segment, whereas the villa segment has registered a slight decline of -1%. Provided that there will be no more major external shocks, the market is expected to fully recover in 2017.

However, the real estate industry remains highly susceptible to macroeconomic factors, as Dubai’s GDP is expected to grow at 2.4% in 2016 (compared to 3.9% annual growth in 2015, as per IMF), the market has followed the trend of oil price drop and seen a decline of 12% in prices since its peak of Q2 2014.

If we have a quick look at the Dubai residential market summary for 2016, we will notice that throughout the upheavals and the negative impact of Brexit, there were some positive remarks as well, with the completion of 5400 residential units during the Q3, marking the highest performance of this kind, since the 2012 peak (6200 units). And the supply pipeline remains extremely dynamic with 11,000 units bound to enter the market in the last quarter, although not all the units will be completed on schedule. Many developers have argued the tightening liquidity conditions and the oil price instability as the main reasons for delay of delivery, which has been rescheduled for 2017. Approximately 70% of the market wide pipeline supply for the second half of 2016 are apartments, whereas 30% are villas and townhouses.

Peeping onwards 2017, the market is expected to drive forward supported by the government’s continuous efforts in investing into new infrastructure projects and the expansions of the existing ones, like Dubai Airports and Emirates Airlines, as well as in other growth industries, such as healthcare and construction, as the preparations for Expo 2020 gear up. A tighter market regulation and more disclosure and transparency, as well as higher property transfer fees and mortgage caps are among other factors of optimism to cater to the future market needs and encourage foreign investment. While there is a high possibility that the Dubai property could see upturn in 2017, there are also several few indisputable concerns.

First, the developers should remain conscious that the balance between demand and supply is very fragile, and that the risk of over supply is imminent if, as fore mentioned in the article, there are 11,000 units currently scheduled for delivery on the last quarter of 2016 and more than 30,000 units for planned delivery in 2017. Other watch outs would also be the unlikely short term recovery of the oil prices, as well as a continuous fall of the GBP which would add to the venture reticence of the British investors, the third investing nation in Dubai.

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