The property market is cyclical that follows the patterns of boom and bust. The cycles typically start from an increase (boom) in prices, followed by periods of relatively flat or decreasing trend (slump), then in time prices begin to rise again (recovery). Knowing the property cycle is crucial to understand how current property prices are expected to move or change in the future.
A savvy investor tends to look for relatively stable markets that exhibit a promising outlook, positive growth potential and some stability in returns.
Dubai – A resilient property market with potential to grow higher in 2022
The Dubai property market ticks all the right boxes by offering stable returns and demonstrating growth. It has proven to be resilient during the global pandemic and is expected to grow further, with the property market already witnessing record-breaking numbers since the last quarter of 2021. The value of Dubai property transactions more than doubled in 2021 and broke a 12-year record for the value of sales.
Dubai property market has been regulated to be at par with the standards of the international markets, with the best laws and legislations to protect property buyers, sellers and developers. In order to facilitate smooth real estate transactions, the UAE government has also introduced new reforms including a myriad of corporate setups and residency visa options.
Therefore, more than 80 per cent of property professionals believe that the Dubai property market will grow faster in 2022 and the same was claimed in a real estate report published by global real estate brokerage Berkshire Hathaway HomeServices.
In 2021, Dubai recorded over 52,000 apartment and villa real estate transactions, worth AED114.2 billion, which was more than the combined total for 2019 and 2020.
Higher demand leads to price growth…
If properties are in higher demand, it is a natural phenomenon to experience a price rise in the market. The Dubai properties are in higher demand nowadays and it is expected to experience a rise in the prices as well. The question is: will the demand be hit due to a change in prices? Dubai-based experts do not agree with this statement and are sure that in the short term (at least), the demand for Dubai properties will not be affected by the price rise.
According to Property Monitor’s analysis, a market tracker service, January 2022 has recorded the highest price appreciation since August 2021 followed by monthly transaction numbers growing by 2.1 per cent. Residential sector has been enjoying a steady rise in demand since the last year, after the market started showing recovery signs.
In another report, it is mentioned that villas will continue to outperform apartments in terms of demand. Knight Frank, a global real estate consultant, also highlighted that villas are expected to be just 15 per cent of the total new supply – expected to hit the market between 2022 and 2025.
37,000 residential units were delivered in 2021, including 5,900 villas and almost similar numbers are expected to come to the market in 2022. If being a savvy investor, you want to make the most of this situation, this is the right time to invest in Dubai properties. The demand for Dubai properties will continue increasing and so are the prices but the increasing prices will help boost profits.
How can an investor benefit from a rebounding realty market?
Currently, mortgage rates are attractive for investors as the mortgage rates have fallen from 5.2 per cent in 2019 (end) to 2.5 per cent at the start of 2021. Interest rates have been cut down due to the pandemic, which can help investors borrow more or at better rates.
However, with the recent rate hikes, industry experts predict mortgage rates coming back to 4.75 per cent to 5.25 per cent at some point during 2022 – compared to the 3 per cent to 3.5 per cent average rates now. If the value touches that level, it would be the highest level on mortgages since 2018.
The hike of 1.25 per cent in mortgage rates means increased monthly payments for the borrower. If we take an average of AED1 million home loan for the next 25 years term, a 1.25 per cent increase would add approximately AED687 to the monthly payment. Initially, it may not sound like a huge change to the instalment but it will add up to a significant loan amount over a 25 years bracket.
Therefore, it is advised to invest in Dubai properties now, when the prices are affordable and mortgage rates are also lower. And also opt for a fixed-rate loan, at least in the initial years or two, as the immediate future forecast is that there will be a steady upward hike in mortgage rates.
Loan-to-Value (LTV) ratios, which is a comparison of the amount of a loan you want to borrow to the appraised value of the property you want to buy, have risen by 5 per cent for all first-time home buyers, who can now borrow up to 80-85 per cent of the property’s total value as a home loan amount.
Being a first-time property buyer, you will have to invest 15 to 20 per cent of the property’s total worth as a down payment. Higher LTV ratios have made it easier for first time property buyers to enter the market – opening up a channel for a larger pool of new investors in the market.
Is it viable to invest in Dubai properties now?
If you are planning to buy a property in Dubai and holding back your plans in order to avail more discounts, experts suggest you investing in Dubai real estate now, as it is the best time to take a decision.
With home loan interest rates lower than they will be in the near future, availability of higher loan-to-value ratio, lower property prices coupled with recent capital gains and incentives on offers from sellers and developers both – the Dubai realty market is still viable and inviting for investors.
Demand for Dubai properties has been constantly increasing due to a number of reasons but property prices hike will not seem to be stopping any time soon. However, it is still considered a buyers’ market, as the demand is high but prices are mostly accessible. And these all factors will be enough to attract savvy professional investors and end-users alike.
If you are interested to avail of this opportunity and intend to partner with professionals to land the right investment opportunity, you must contact the team HFRE at +971 4876 2473. One of our sales experts will get back to you with a list of handpicked properties dotted across Dubai and a bespoke investment plan to match your needs and fit into your budget.