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Wednesday, November 20, 2013

2013 Real Estate Market Outlook in Dubai and the UAE

The outlook for the real estate market in the United Arab Emirates is much improved over that of the previous few years. Much of this is due to all segments of the real estate market in Dubai currently experiencing a recovery, to the extent that prime office rents are rising for the first time since 2008. The bursting of the real estate market bubble in 2008 dropped these prices in Dubai as much as 65%. In order to avoid a repeat performance, the government is taking steps to ensure that sustained growth is not over exuberant.
However, up to 70% of property purchases are made in cash, which makes it difficult for the government to regulate the market's growth. Experts remain cautiously optimistic, as they watch Dubai's market making a broad recovery; though regulations are not yet in place to avoid another recession, they do not foresee a repeat of 2008 in the near future. Abu Dhabi's real estate market, on the other hand, is estimated to be 18-24 months behind Dubai's market. Plans are now in the works that should see Abu Dhabi experience a recovery on the scale of Dubai's sometime in 2014.
The real estate market is expected to continue its broad recovery during the next few months and well into the rest of 2013, though growth approaching an economic boom is not expected for this year. Financial experts have identified seven major trends expected to determine the UAE's market for the rest of 2013:
  • Dubai's market will display a return of investor confidence. The Abu Dhabi market, however, will not yet see a similar upturn. Factors driving Dubai's market gains include the UAE's economic growth, increased employment, safe haven status, improved pricing and rental performance, multiple new real estate project announcements over the past six months, and the UAE Central Bank setting new mortgage caps.

  • Several factors will limit the rate of development. Off-plan sales, IPO bonds and bank loans barely support the current rate of growth. This means most developmental funding will come from private money and overseas cash investors.

  • Much of the foreign funding in 2013 is expected to come from Chinese and South Korean investors.

  • Increased supply in real estate will benefit buyers and tenants, but may offset the positive impact on the market.

  • 2013 will see a greater concern for health and safety, with occupants making demands and legislation ensuring the adoption of best practices. This favors a best-value vs. lowest-cost approach to investments.

  • Likewise, 2013 will likely see a greater focus on initiatives for sustainable, 'green' buildings.

  • UAE government will continue to influence the market's growth with initiatives such as mortgage caps, and stimulus packages.
These trends support the widely-held view that the UAE's real estate market will see a broad recovery in 2013; a good, stable growth, that, if not an economic boom, will not result in a dangerous market bubble like that of 2008.

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