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Investing in Dubai real estate: Which asset class should you choose?

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Cityscape Intelligence takes an in-depth look at Dubai’s market’s performance and its outlook across the residential, office, and hospitality sectors

There are rules to investing in real estate during a pandemic. A quick round-up of lessons property buyers everywhere have known a while, but have recently seen play out on a global scale. First, the market is like a nervous animal. It scares easy, and it does not like uncertainty. Second, during prolonged periods of uncertainty, take the long view. Hold, don’t panic, don’t sell, buy long-term. Property has always been a clunky asset, anyway.

And third, cleverer markets will respond by remodelling themselves, retooling their policies, making concessions, offering cuts — anything to make themselves more attractive, more investor friendly. And those are the ones you want to invest in.

We’ve seen quite a lot of that here in Dubai. Changes to citizenship and visa rules, trade licences and work permits, new digital investment platforms, a new Urban Master Plan. But if you’re thinking to invest in Dubai’s property market, here’s a subtle fourth rule: choose your asset class wisely. It doesn’t have to be a house, an investment favoured by first-time buyers. Instead, tailor your selection to your specific buy, hold and sell strategy. To help, we’ve put together a quick guide to Dubai’s real estate performance across its three major asset classes.

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RESIDENTIAL

For some years now, any honest discussion of Dubai’s real estate market — and particularly of its residential sector — has included the issue of oversupply. This glut, it is said, drove the market to a price slump. But then with the Expo on the horizon, 2020 got off to a promising start — and then the pandemic hit.

Still, by the third quarter of 2020, demand returned, and transaction numbers started climbing. So much so, that the fall of residential property sales was mitigated to 14% for the year. Villa sales prices showed only a moderate decline, but apartment sales prices more so. In 2021, experts are projecting modest declines in both prices and rents, but an otherwise healthy demand — unsurprisingly, lower prices have turned Dubai’s residential sector into a buyer’s market. The oversupply, meanwhile, is expected to ease by 2023.

OFFICE

Work-from-home, remote-working and staggered-return-to-work policies hit the commercial real estate sector hard — how could they not? Landlords did their best: they offered concessions to existing tenants and incentives to new ones, they realigned their asking prices. But the office sector will witness only limited levels of additional uptake in the near-term — many companies have yet to resume operations at pre-pandemic levels. And then there’s that oversupply.

Despite this, some firms are taking this opportunity to upgrade their occupational space — prime and grade-A offices in Dubai’s Free Zones are most likely to benefit from this ‘flight to quality'. But experts also claim that Dubai’s prime and grade-A vacancy, which is relatively low at present, will increase over the course of this year with the delivery of additional supply.

HOSPITALITY

Compared to other major tourism markets in the region, Dubai’s hospitality sector proved relatively resilient in 2020. And by the end of the year, hotel occupancy rates saw a resurgence, oscillating between 50% and 70%.

The outlook for the sector is better still. With the rescheduled Expo once again on the horizon, the rapid immunisation drive, the normalisation of trade relations with Qatar, and the establishment of diplomatic relations with Israel, have all instilled plenty confidence in the long-term outlook. So while the sector is now chugging along on the back of domestic travel and stays, experts have projected a favorable long-term outlook for Dubai’s hospitality market.

 

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