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02 December 2023

UK expatriates gain as dirham advances

Matthew Green (SUPPLIED)

By Anjana Kumar

Although British investors view Dubai's real estate sector as an expensive alternative to investment in their home market, expatriates have gained from advance of the dirham against the pound, said an expert.

"Those UK investors who invested in properties here in Dubai about two years back and are living in the UAE are sitting on a value gain of about 35 to 40 per cent considering the strengthening dirham against the pound," said Chris Dommett, Chief Executive of John Charcoal Middle East.

"What these investors have lost in terms of real estate price values falling they have gained with respect to the currency exchange rate."

Matthew Green, Associate Director, CB Richard Ellis, Middle East, said even while British investors will now see far more value in the local property market as sales prices are declining and rental yields are increasing, with the fall in the fortunes of the pound against the dollar, the UK investors may be looking closer to home for current investments.

"Investors are obviously looking closely at what options within their portfolios are most economically viable given the downtown in global markets. One can see local investors looking to the UK market with the combination of price declines and the lower value of the British pound creating some very interesting investment opportunities," he said.

British investor, Craig Beech, Business Development Manager, Construction Chemicals, said the cash-rich investors looking to invest in sterling would be keen on investing in some of the distressed assets that have been sold in the realty sector in Dubai. "If I had one million sterling to invest in this region, I would be doing exactly what a lot of cash-rich people are doing here right now. That is to buy up as many property distress sales that are highly rentable as I do believe the market will resurface and that too quickly.

"There must be a lot of people who are disappointed for not buying in the realty sector in Dubai when prices were low. The prices now will give them a second chance to own and live in a great house while making some serious money."

Beech has invested approximately £200,000 (Dh1.04 million) in the Dubai property market and approximately £100,000 in the Abu Dhabi real estate market.

"I did actually try to sell one of my properties recently for another investment but I changed my mind. A lot of British people had the idea of repatriating money due to the favourable exchange rate. I have read this rate will stay for quite a while or will fall even further. The people who did this, therefore, have their money in an economy, which is falling faster into recession than first predicted, and one that will last longer. It could be a better option to keep their money here, although only time will tell."

Another investor from the UK, Eddie Green, said: "If you look at properties being sold at distress, even while the currency exchange does not favour investments here, the fact that properties are being sold so low is making the market attractive."

Green holds a number of units in Dubai and has said he will not sell off his assets in distress. "I have no plans to sell my properties, especially the off-plan properties considering the market is not looking attractive for sellers at the moment," he said.

British investor Harvey Boulter, Chief Executive Officer, Porton Group, said mortgage lending rates are currently high and needed to be lowered in order to stimulate the market.

"Developers need to be more flexible to investors here. For instance some of them are cancelling contracts for missed instalments, but that will harm the property market eventually. Personally I think prices will continue to fall in Dubai, but there are a lot of hurdles for an investor to invest into the realty sector currently."

Boulter has invested in about 50 apartments and 20,000 square feet of office space in Dubai along with a number of investments in the US, UK and South Africa.

"I will hold onto all my investments here and not sell quickly as I have invested with a long-term vision."

"The market is currently difficult but real estate is a cornerstone of the Dubai economy and dreams. Dubai real estate is sentiment driven, unlike countries, such as the UK, and extra care needs to be taken. The government needs to cut the inter-bank rate to about two per cent and look to cap the margins banks can earn over this to, say, 1.5 per cent instead of the current three to four per cent that is excessive by global standards." he said.

Boulter also called for banks to increase the LTV ratio up to 85 per cent, which would greatly help the real estate sector and encourage people to live in Dubai.

According to Dommett, the local real estate market seems a far more risky sector compared to any other country and while Eibor rates have been lowering, banks have not transferred that benefit onto their customers.

"The current Eibor rate is about 3.2 per cent and 3.6 per cent depending on the tenure of the loan. This was about 4.6 per cent to 4.7 per cent at the end of 2008. Although most mortgages align with the Eibor rates, and even while these have been coming down, banks are perceiving the real estate sector in Dubai to be risky and are thus not looking to re-price their interest rates."

He said current average lending rates are in the region of nine per cent to 10 per cent. "Interest rates do need to come down as people are struggling to make re-payments on their loans. Cost of servicing debt has gone up," he added.

Meanwhile, the UK investors have re-confirmed their faith in the Dubai real estate market

"Dubai is a very attractive market at the moment, property prices are low, it's still tax free and banks are beginning to lend once more. As soon as property finance returns I believe the market will bounce back very quickly. A lot of people have been shaken quite badly by what has happened and it is pushing them to sell at all costs by dropping their prices way too much. These same people would immediately put their sale price back to its highest amount if people start to buy again," said Beech.

"However, the exchange rate is affecting me personally since I am paid in sterling. My salary and allowances have decreased by 30 per cent as a result and quite a lot of people I speak to are in the same situation. We are not saving as much money. In addition, people in general will be reluctant to transfer large amounts of money as a deposit for a property due to receiving far fewer dirhams, which must have been one of the factors that contributed to the fall in property prices during the fourth quarter of 2008," added Beech. The British investors also welcomed regulation coming from the Real Estate Regulatory Agency (Rera) and said it protects individuals and the market alike.

"However, there are so many new regulations being introduced by Rera that it is difficult to keep track of changes sometimes. I last purchased a property in Dubai in January 2008, and in Abu Dhabi in November 2007. Since then there have been so many changes implemented by Rera," Beech said.

CB Richard Ellis' Green said: "Rera has certainly improved the market for international investors with the introduction of escrow and also the regulation in relation to agents. If markets are free and unrestricted then this can lead to greater levels of investment."

UK realty prices up 1.2 per cent

UK property prices have increased by 1.2 per cent in February as "falsely optimistic" sellers pushed the average asking price up to £216,163 (Dh1.13 million), property website Rightmove said yesterday.

Despite the slight rise prices were down by 9.1 per cent compared to last February. Vendors put their properties on the market with a price tag on average £2,593 higher than the month before, a decision which Rightmove said "flies in the face of consumer sentiment".

A survey for the site showed nine out of 10 sellers thought this was a bad time to sell a property. Commercial Director, Miles Shipside, told The Guardian: "In spite of 25,000 out of 28,000 potential homemovers in the Rightmove survey stating it was a bad time to sell, sellers appear to have ignored their fellow homemovers' assessment of market conditions and put prices up. Serious sellers need to set their initial asking price more realistically to get one up on the competition and take advantage of increasing numbers of bargain-hunters who have set their own price floor ahead of the return of mainstream purchasers."

Rightmove reported an increase in the number of buyers coming to the market, echoing recent reports from the Royal Institution of Chartered Surveyors, while the number of properties available has fallen by 45 per cent compared to February last year.

However, Howard Archer, chief economist at IHS Global Insight, said the imbalance between the number of properties and the number of enquiries was "no guarantee that there will be a marked pick up in sales soon".

Continued harsh lending criteria means many would-be buyers are finding it difficult to secure a mortgage unless they have a large deposit, said Archer. "The vast majority of vendors are not going to achieve the prices they are asking for," he added. (Agencies)