Revealed: Reasons why Dubai property prices are booming

If you haven’t been monitoring Dubai’s property prices of late, you might be in for a bit of a surprise. Real estate prices in some of the more popular residential communities surged by 30 per cent or even more in 2013. Even newly delivered projects are gaining momentum, and the off-plan property market is back from the dead.

Click Here: 5 reasons why Dubai property prices will continue to rise

Yes, all that and more happened in 2013, and property prices in 2014 have continued gaining strength never mind the revised mortgage regulations coming into play, which mandate a lowering of the loan-to-value offerings by banks to both resident expats and UAE nationals in a bid to cool down the property market.

The Dubai property market, however, continues to outperform its global peers and the reason behind this is that it is seen as a not just an inflation-proof store of value, but also a great asset for higher return on investment. Read: Dubai house prices rising fastest in the world – again

A new report suggests that the region’s ultra-wealthy hold more than a quarter (26 per cent) of their wealth in real estate, more than the global average of 19 per cent. Real estate now accounts for around a fifth of the invested wealth of the nearly 200,000 super-rich individuals in the world, according to new analysis from international real estate advisor, Savills, in association with Wealth-X, an intelligence provider on the world’s ultra wealthy.

Private wealth is increasingly shaping the world’s real estate markets and the use of private equity in major property deals worth at least $10 million has nearly trebled since 2009, says the report titled Around The World In Dollars And Cents.

Yesterday, Dubai-based classifieds website Dubizzle released its latest 2013 UAE Real Estate Price Trends Report, which offers an overview on the shifts in prices for rental and sale properties from January through to December 2013.

Properties in established communities are experiencing a substantial price rise. Jumeirah Lake Towers, for instance, witnessed greater price hikes compared to its neighbor, Dubai Marina. Over the past 12 months, Dubizzle data shows a 41 per cent increase in price of a 1-bedroom apartment in JLT. A mid-ranged 1-bedroom apartment is now being advertised for approximately Dh1.2 million as opposed to Dh850,000 at the start of last year, a note from the classifieds website said.

JLT may be a unique case as public perception played a big role in keeping a lid on prices until the first half of 2013. “In November 2012, fire breakouts in a tower in JLT, followed by another incident in June 2013, caused a scare and were thought to be one of the reasons that resulted in a dip in the value of apartments in the community,” says Ann Boothello, property marketing specialist at dubizzle.

In fact, according to Boothello, 3-bedroom apartments saw a drop of 7 per cent from January to June in 2013. However, she maintains that they have picked up since and reached a high at the end of the year. “As well as this, the topic of JLT’s incomplete road infrastructure causing bottlenecks and traffic jams often makes its way to coffee table conversations among residents. However, none of these factors seemed to have dampened the asking price for these apartments,” she says.

Dubizzle’s 2013 price trends report found that JLT 2 BR apartments saw a 17 per cent increase in advertised selling price and a 47 per cent increase for 1 BR apartments. Moreover, with major road works and infrastructure development recently getting over in JLT, property prices in the community are expected to maintain their momentum this year.

Data from the Dubizzle report also reveals that it isn’t just properties in established Dubai communities that are experiencing a price spike. Nahkeel’s relatively new community, Al Furjan, for instance, experienced increases in advertised prices of up to 26 per cent last year. According to the classifieds portal, 3-bedroom villas went up from Dh2.5 million in January 2013 to Dh3.15 million by December.

It’s not hard to understand why property prices in Dubai and across the UAE are surging. A stabilising global economy is lending confidence to investors and fence-sitters alike to move into higher risk asset classes such as equities and property. That is also one of the primary reasons why prices of precious metals, especially gold, declined by more than a quarter last year, as punters and pundits move from the relative safety of precious metals into riskier asset classes.

The Wealth-X and Savills report estimates that the total value of the world’s real estate is now around $180 trillion, some 72 per cent of which is owner occupied residential property. Individual investors – whether those looking to occupy their properties, rent it, or flip it – are playing an increasingly important role in shaping the global real estate market’s fortunes, the report suggests.

It maintains that of the $70 trillion that is ‘investable’ and therefore traded regularly – including $20 trillion of commercial property – over half is being bought by private individuals, companies and organisations. Investing institutions, listed companies and publicly owned entities are in effect becoming relatively less important to world real estate as a result, it suggests.

Around 3 per cent, or $5.3 trillion, of the world’s total real estate value is owned by the ultra wealthy. This wealthiest 0.003 per cent of the world’s population has real estate holdings which are worth an average of $26.5 million (Dh97 million) each.

“Global real estate is mostly residential and held by occupiers, but private owners are becoming more important in the world of traded investable property,” says Yolande Barnes, head of Savills world research. “Since the ‘North Atlantic debt crisis’ of 2008, sovereign wealth funds, wealth management companies, private banks and family offices have stepped into the property deals that corporate bankers have deserted,” she said.

“In the world’s leading cities, the willingness of private wealth to take the place of debt finance or to take a higher-risk development position is now making the difference between deals done or schemes mothballed,” she added. Savills estimates that around 35 per cent (or 6,200) of global big ticket (>$10m) deals in 2012 were only possible because of private funding.

Mykolas D. Rambus, CEO of Wealth-X, confirms the growing importance of private wealth: “We forecast that the ultra wealthy population will grow by 22 per cent by 2018, its combined wealth – currently $27.8 trillion – is expected to total over 36 trillion by 2018. This presents huge opportunities for those involved in global real estate investment to create the right product in the right locations.”

Ultra wealthy by region

% of total world private wealth

Total private wealth ($bn)

% of wealth held in real estate

Real estate wealth by region ($bn)

Europe

28%

$7,675

31%

$2,391

Asia

24%

$6,590

27%

$1,800

Middle East

3%

$880

26%

$231

Oceania

2%

$485

16%

$79

Africa

1%

$350

10%

$37

Latin America

8%

$2,110

7%

$157

North America

35%

$9,680

7%

$633

World Total

100%

$27,770

19%

$5,328

Source: Savills World Research/Wealth-X

The firm also analysed the way private money moves around the real estate world and found that the majority (92 per cent) of investments are within the ‘home’ global region. North America stands out as uniquely domestic, with 99 per cent of all super-rich investment coming from US citizens themselves.

Meanwhile, mature and emerging nations have seen much more cross-border inward investment. Just under half (44 per cent) of super-rich investors in Africa and two-thirds (66 per cent) in Latin America are from outside the home region.

European real estate markets are the largest and most international, having attracted the most global inward investment, relative to size, with London the standout global destination for private inward real estate investment from virtually every corner of the globe.

“In recent years there has been a tendency for ultra wealthy individuals to focus on ‘safe haven’, trophy properties for capital growth and wealth preservation,” says Barnes. “In future, we anticipate that some will begin to seek more productive, long-term income-producing positions.

“The ultra wealthy will be competing more directly with institutional investors in future but, being more opportunistic and less constrained by formal criteria, are more likely to become pathfinders and pioneers than corporate investors are.”

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