Future of Investment in Off Plan Properties in Dubai
Prices of villas and apartments and off plan properties in Dubai have fallen a cumulative 25 – 30% during the Coronavirus pandemic, not only in suburbs or outskirts but in prime locations too. Experts believe this fall is not a surprise because macro / liquidity cycle, Covid-19, and supply demand analysis suggested the current situation at the beginning of pandemic. According to experts, it is surprising that media, brokers, developers and bankers all promoted Expo 2020 as the reason to buy off plan properties in Dubai. They have been calling Expo 2020 the savior of the Dubai Property market since 2015 and even now when it is successfully running.
Expo 2020 is a big thing but it does not seem to help out the property market, as off plan properties in Dubai price is going back to normal and will soar high even after the Expo is over. One of the largest property developers in Dubai, DAMAC was 70% down from its peak time during Covid lockdown. It was running on operating losses and owes at least $1.5 billion in bank loans and bond market debt.
The smart money consensus in off plan properties in Dubai was also on a 10 – 15% decline after the recent crash in rents, lower vacancy rates and a huge oversupply during Covid. The hope for a sustainable bottom in 2021 or even 2022 seems is evident. Keeping in mind the banking credit, rising employment for expats and a constant rise in offshore inward capital flows from traditional investors like UK, India, Russia, Saudi Arabia, Pakistan and Africa it seems highly likely that the market will stabilize this year. The demand for Dubai off plan Properties is on a steep rise.
According to experts, the liquidity cycle will also be positive for real estate in 2021 and 2022 even beyond. Financial institutions have lent approximately $80 billion of loans to the real estate sector and seek $28 billion in mortgages from the homeowners too. This all indicates that the six-month EIBOR rate will go down in the near future, making off plan properties in Dubai more attractive option for investors. Home mortgages in the UAE are among the most expensive in the world, but institutions will provide concessions once the market is back to normal.
With a vacancy of just 50% during Covid, Business Bay also owes big chunks of money to the commercial banks who financed mostly vacant office buildings, half empty warehouses, ghost labor camps and empty shopping malls. This situation caused non performing loans to rise even more. The cost of borrowing and access to borrowing will be stressed for at least the next year, till the demand and supply of off plan properties in Dubai achieve equilibrium.
We have seen some real estate markets touch the bottom at 30 – 35% in Florida, Spain and the UK during the pandemic. This means a 25 – 30% decline in price risk was present in the prime off plan properties in Dubai where one could be most interested to invest when the market touches the bottom. New buildings, off plan Properties in Dubai and housing projects makes sense now. However there are thousands of empty units and a scarce supply but the demand is also increasing, specially around the Expo site.
We can expect off plan Properties in Dubai profit margins will continue to rise, while leverage ratios would fall and asset quality might strengthen in bank loan books. We also have reasons to believe that the EMI rental gap will shrink a majority of buy to let investors, even if the service charges are continuing to rise. This makes a bottom in prices evident until the credit cycle stabilizes till next year. The question still remains, will it stabilize in 2021 or even in 2022? Experts absolutely think so and are positive about the future of off plan properties in Dubai.