_What can buyers and tenants expect from the market over the course of 2020?

After a period of softening demand, Dubai’s residential market appeared to be on the rebound. Annual transaction volumes in 2019 grew by 22% and it appeared that this strong momentum was likely to be carried into the new decade. In the year to date, February 2020 transaction volumes increased by 24%, compared to the same period a year earlier, making it the strongest start to the year the market had witnessed since 2017.

May 18, 2020

However, given the onset of the COVID-19 pandemic in March 2020, even the most optimistic market participants thought this momentum was likely to come to an abrupt halt. With many GCC countries enacting a range of measures to control the spread of the novel coronavirus, mostly in the week commencing 15th March, and Dubai further increasing the severity of the measures with a 24-hour lockdown throughout the majority of April, it appeared that the market would indeed come to a grinding halt.

Despite the severity of these measures, Dubai’s residential market has not come to a halt. Activity has certainly slowed but there is still considerable purchaser appetite. In the year to April 2020, off-plan transaction volumes increased by 5.0%, whilst ready property transactions decreased by 5.0% when compared to the same period a year earlier. Month-on-month off-plan transaction volumes in April 2020 fell by 8%, whilst ready property transactions fell by 68% over the same period.

Off-plan transaction volumes have been supported by the relative ease of off-plan property transactions and also due to many developers reacting remarkably quick in introducing virtual-reality client viewings. Whereas, the process of buying a ready residential unit is more complex from both a documentation perspective and a buyer’s preference to physically view the property, something which has not been possible during the lockdown.

Looking ahead, given the economic impact that COVID-19 has had and will continue to have over the course of the year, we can expect that demand will taper down from the levels witnessed in 2019.

Average prices, which fell by 6.8% in the year to March 2020, are likely to remain under considerable pressure, particularly due to the influx of supply scheduled to be delivered in 2020. Prices for new build units are likely to be more resilient in relative terms, particularly given the ever more attractive payment plans on offer to date in 2020. Supply due to be delivered towards the end of 2020 may also be delayed, as developers and regulators manage market conditions.

As supply increases and demand wanes as a result of the weaker economic backdrop, rental rates, which fell by 9.2% in the year to March 2020, are likely to continue to soften significantly throughout 2020. More so, landlords will likely become more flexible in relation to payment terms and incentives such as rent-free periods.

Whilst there will challenges for Dubai’s property market to overcome in the short term, the fundamentals underpinning Dubai as a critical global business hub will continue to support the long-term allure of Dubai’s residential market. These fundamentals will be further supported by recent announcements from the UAE Central Bank to increase the loan-to-value ratio applicable to mortgages for first time buyers by five percent, which includes off-plan property mortgages. In addition to this with interest rates trending lower, mortgage rates are near record lows, which may encourage renters to switch tenure. Finally, for international buyers, with the US Dollar being near record highs, international property purchasers will face paying a premium to buy property in Dubai given the Dirham’s Dollar peg. However, as global economies come out of the lockdown we are likely to see the Dollar’s strength moderate, which will in turn encourage international demand in the medium term.