Matthew Green, the Head of Research and Consultancy at CB Richard Ellis Middle East, one of the world’s leading commercial real estate advisors, cautions expats to be careful if considering buying property in Dubai.
Freehold gives expats free reign
The creation of the Freehold Decree in Dubai in 2002 gave foreigners the right to buy property, sell property and lease property at their own discretion. It was the first ownership opportunity of its kind in the UAE and a catalyst for unprecedented economic expansion.
“The law made Dubai a far more attractive proposition for expatriates as new developments aimed at foreign nationals began to spring up across Dubai,” explains Green.
He clarifies that the inward investment promoted by the Freehold Decree helped launch multiple projects like the ‘New Dubai’ area, an extremely popular expat community made up of master-developments like the Dubai Marina, Jemeirah Lake Towers and Emirates Living.
Even the Downtown Dubai development, which contains the world’s tallest building – Burj Khalifa, and the Palm Jumeirah were examples of key Freehold projects.
The overall effect was an influx of expat immigration, and massive growth in economic sectors like construction, architecture, engineering and other real estate related services. As more and more job opportunities materialized and added international attention adjusted its focus to Dubai, the city became a global hotspot and a prime destination for expats to live lavishly and save on spending.
To buy or not to buy?
The spotlight proved to be short-lived; however, the global recession arguably hit Dubai harder than any other Middle Eastern destination. Property values reduced in some cases by over 60% and even the leasing market declined from around 40 to 50% from peak rates in 2008-2009.
But now, over a year since the core of the crises many may be wondering if some of the bargains that have come to be in the aftermath are worth a nibble and a bite. Homeowners are willing to sell their property in Dubai for a large loss, in some cases, as they battle to reduce their exposure to risk.
However, Green recommends, “an investment should only be pursued with a high level of understanding of the product and its position in the market.”
There still exists much uncertainty in the real estate market, and issues like the lack of transparency and an absence of protection for investors have still not been addressed accordingly.
He predicts,”the next six to twelve months will be subdued with an uptick of economic growth required to really get things moving in the property market again.”
He goes on to say that this looks to be a period of transition, banks are still reluctant to finance large loans and investor confidence is still in a slump. Sales values thus remain at a minimum, and expats should be cautious when considering purchasing property in Dubai.
Due to stringent lending procedures, large cash deposits (between 20 to 50%) are required to secure property and many are struggling to have mortgages, loans and credit card approved.
Though construction on some massive projects continues and property established in areas with suitable amenities and facilities can still command high value, for the moment, expats moving to Dubai should sit tight and take advantage of a leasing market driven ever lower by oversupply and competition.