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Buying a property remains the simplest way to invest money for most people. It is far easier for an investor to calculate the liquidity of a property than cryptocurrencies or securities. In addition, housing can never be completely devalued as it is a basic human need.
This also applies to real estate in Dubai – the most economically advanced country in the UAE. How have the recent global crises affected the real estate sector in the UAE, and what opportunities have opened up for investors?
Content:
- The biggest crises of the XXI century and their impact on the UAE
- Current market situation and benefits for investors
- How to invest in a crisis
The biggest crises of the XXI century and their impact on the UAE
Today, the United Arab Emirates is a major financial center and a powerful magnet for real estate investors. Let's consider how the government and the country's market reacted to the global world challenges of the XXI century.
Global financial crisis of 2007-2010
Consequences of the crisis for Dubai
In 2007, Dubai's previously booming real estate market began to change. Supply exceeded demand, but house prices continued to rise, fueled by speculation. By 2008, as a result of the global economic crisis, the continuous introduction of new properties on the market, and a sharp decline in speculative activity, the bubble in the local real estate market reached its peak. This led to a massive collapse in early 2009.
During the first 6 months of 2009, the cost of apartments in Dubai decreased by more than 50%, and multibillion-dollar projects were frozen or completely canceled causing unemployment for many.
In 2010, the crisis continued to increase. Sales fell by 65%. However, supply continued to grow. The average price per square meter continued to fall. Nevertheless, projects in high-demand areas were no longer being depreciated. By 2011, the fall in housing prices came to a halt, with a decline in supply. Prices started to stabilize and rise. The highest growth was recorded in the Palm Jumeirah archipelago – a rise in the price of villas by 20-25%.
Consequences of the crisis for the UAE
Between 2007 and 2010, thanks to the government's policy, the UAE quickly rose above the global crisis with minimal consequences for the national financial system.
The crisis reached the UAE in early 2009 and affected almost all key areas, including real estate, trade, tourism, etc. Dubai suffered the most. However, the state avoided fatal consequences for the economy. This was possible due to the following factors:
- Accumulation of reserves during the rise in oil prices in 2008, when the cost per barrel was $150;
- Investments and support of the UAE economy by foreign banks;
- Despite the withdrawal of investors during the crisis, not a single member of the Dubai banking sector went bankrupt, a truly significant success against the backdrop of a wave of bankruptcies in the United States and other countries.
Result
The market recovery required tighter supervision and regulation of the real estate sector, and also made it more sustainable across the UAE. The suspended projects were gradually resumed.
Despite a strong exit of foreign investments, the state-owned banks of the UAE continued to maintain the liquidity of financial institutions, with the assistance of a 3-year guarantee from the Federal Government for loans and deposits.
The global crisis was not fatal for the UAE economy as was confirmed by the fact that in 2009, the UAE's GDP exceeded $270 billion.
The UAE and the COVID-19 pandemic
Consequences in numbers
As a result of the coronavirus pandemic, the economy of the United Arab Emirates in 2020 decreased by 6.1%. The country's GDP in 2020 decreased to 6% – from 8.5% in 2019 – due to low exports.
Dubai was once again faced with the most severe consequences. Since the start of the pandemic, housing prices, in general, fell by 2% in the apartments and villas segment. The yearly decline was 8.3%. This decrease was less severe than between April 2018 and April 2019, when property prices fell by 9.7%.
Home sales were also affected by quarantine restrictions. In March 2020, they fell by a record 42% compared to February of the same year, and the average capital value of properties decreased by 10% compared to 2019.
In the first quarter of 2020, the cost of apartments, villas, and office space on average decreased by 12% compared to the same period in 2019.
Recovery
Despite the significant effects, the coronavirus pandemic had a temporary shock effect on the real estate market and the UAE economy rather than becoming a long-term problem. Since the middle of 2021 and throughout 2022, the UAE has been actively recovering. Several segments of the real estate market have exceeded the pre-pandemic level.
Government initiatives have played an important role in this by offering the following: a residence permit for foreign pensioners and remote workers, an extension of the Golden Visa program for 10 years, and a reduction in the minimum investment threshold for obtaining a resident visa.
Result
During the pandemic, there was an immediate decrease in the demand for retail office space and residential real estate. However, this trend has changed in the last two years. The UAE government has further opened the real estate market to ex-pats, attracting more investment. 5-year and 10-year resident visas have been introduced, which can be obtained by investing in real estate.
Experts predict the GDP growth of the United Arab Emirates in 2022 will be 3.5% compared to 2.2% in 2021.
Current market situation and benefits for investors
The robust market recovered in 2021 with a record number of purchase and sale transactions (84,196) worth $81.67 billion over 12 months. 2022 continued to be an equally successful year for Dubai. In April 2022, the total number of transactions in the local housing market was 6,342, an increase of 43% more than in April last year.
What is the reason for such success? First of all, the active incentive measures by the UAE government. Their list includes:
- Increase in the loan-to-value ratio (LTV) by 5%;
- Reduction of the deposit for purchasing housing from 25 to 20% for foreign nationals and from 20 to 15% for Emirati citizens;
- Foreigners can cover up to 80% of the value of the real estate through mortgages on real estate worth AED 5 million ($1.36 million, ¥9.13 million) and up to 70% on properties for over AED 5 million;
- The maximum loan to purchase an off-plan property has been increased to 55%;
- Reduction of the minimum threshold for obtaining a resident visa for 3 years – from AED 1 million ($272,200, ¥1.8 million) to AED 750,000 ($204,100, ¥1.3 million).
How to invest in a crisis
In 2022, housing in the UAE is steadily becoming more expensive. According to Property Monitor, Dubai’s average property prices rose by 0.74% in May alone and continued to rise by about 1% over the next 3 months. Real estate in the luxury segment increased faster in price than the market average. The gross rental yield in the emirate was 6% compared to 5.4% at the beginning of 2022. Business Bay has demonstrated one of the highest growth rates in the real estate market. Home sales have increased by 17% since the beginning of 2022. Experts believe that housing prices in the emirate will continue to rise. This is due to the measures taken by the government to stimulate the market and the fact that their growth began at a very low level due to the crisis.
The COVID-19 pandemic has also created a steady demand for rental housing in Dubai due to remote work and has also caused a mass migration of "digital nomads" to warm and economically developed countries such as the UAE. During the first quarter of 2022, rental growth was recorded in almost all communities in Dubai. This figure was 6% in the apartment sector. It may reach 15% In the villa sector by the end of the year.
Time has shown the UAE's resilience to the shock factor and the professionalism of a government that can make effective decisions in difficult times. Today, when prices in the housing market are rising, investing in real estate in the UAE can be an excellent solution for those planning to save and multiply their capital in a short period.
If you need advice and comprehensive support in finding and buying real estate in Dubai, contact the experts in the Emirates.Estate website.
