90,000 new houses in Dubai by 2018, but no oversupply

The fear of an impending bubble in Dubai’s real estate market was ruled out long ago, now real estate experts are convinced the residential segment won’t witness any oversupply.

In its recent report, HSBC Global Research said that Dubai will see a supply of 90,000 new units by 2018, but the market will absorb – fairly easily — the new supply even if the population grows less than 5 per cent per year.

“We believe that we have not yet reached the peak of the cycle, and that the market can continue to absorb the expected supply additions over the next few years, even at a population growth rate below 5 per cent,” the bank said.

Dubai Statistics Centre’s data shows the non-labour population rose by over 7 per cent in 2012 and 2013, while the number of households grew by 7.6 per cent in both years.

The HSBC report estimates that major developers will deliver 90,000 units between now and the end-2018, with Emaar Properties and Damac supplying for 25,000 each, or 55 per cent of the total. New additions will thus increase the current stock of housing for white-collar workers by 25 per cent in the emirate.

“We assume that 30 per cent of this new supply will be bought by foreigners who intend to use them as second homes, which they will not rent out,” HSBC states, pointing to Emaar and Damac statements that “a large portion of their sales are to second-home buyers”.
Assuming an average household size of 4.4 (per current Dubai statistics), the report estimates that the Dubai population would need to increase by 300,000 people by 2018 in order to absorb all of the new supply.

“This population growth level is well below what we have seen over the past few years,” the bank states, citing Dubai Statistics Centre’s data (mentioned above).

Citi, a global bank, stated recently that at the current pace of population growth,

Dubai can absorb on average 25,000 new units per year

, adding there was enough space for new project launches as well.

New jobs

Employment growth is the main driver of population growth in Dubai, the report said, referring to significant hiring announcements made by the UAE companies.

Among the major announcements were Arabtec adding 10,000 skilled engineering jobs in Mena this year, a good portion of which HSBC expects to be in Dubai.

Besides, a Dubai Economic Development survey reveals around 40 per cent of businesses are looking to increase headcount, while an Oxford Economics report estimates that Expo 2020 will create more than 275,000 jobs.

“Even if only 25 per cent of these are white-collar, this would still mean an additional 70,000 households (on the basis that each job means an additional household),” the bank said.

Good rental income

HSBC said rental yields were also supportive of increasing investment in the market with Dubai still being relatively inexpensive on an international basis, especially when it comes to prime properties.

“We estimate that Dubai net rental yields are currently around 4.5 to 5 per cent, depending on the area. Mortgage rates are generally in line with, or below, those levels,” the report said.

The Wealth Report 2013, produced by Knight Frank, a global property company, had revealed that Dubai’s prime luxury properties were much over 10 times lower than Monaco, the world’s most expensive residential property market.

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