Investors in Dubai Property Seeking Better Returns

According to industry experts, those who hold investment’s in the popular Dubai property sector are seeking better yields. The call for higher returns comes as the attitude towards …

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According to industry experts, those who hold investment’s in the popular Dubai property sector are seeking better yields. The call for higher returns comes as the attitude towards property deals is under a number of economic influences including the strength of the US dollar, a falling oil price, and weaker levels of economic growth.

The later part of last year saw the rate of growth in Dubai property values leveling off. This year, things are expected to continue to decelerate. However, most forecasters are painting a picture of the year ahead that is very different from the 2008/2009 crash. While that particular event cut prices almost in half, Dubai has taken a number of steps to avert another such disaster and analysts believe that the market will not suffer nearly so badly this time around.

Investors continue to take an interest in the Dubai market. However, they are now shifting noticeably towards higher-yielding opportunities. As the market slows down, investors are not rushing to abandon ship but are demanding that their investments deliver a little extra in the way of yields. According to Jesse Downs, Dubai property consultancy Phidar Advisory’s managing director, investors in the Dubai property market are currently "looking at 9 to 10 per cent dividends or yields and to get that in this market you need to see prices declining."

The result of this more cautious and discerning approach is a decrease in the overall volume of transactions. According to recently-released data from the Dubai Land Department, the combined value of property deals through 2014 fell by 7.6% compared to the previous year, settling at a level of Dh218 billion.

Certain types of commercial opportunities have proved especially popular with investors over the last year. Offices, hospitality assets, and shopping centre investments have all gone down well.

Dubai properties are, however, vulnerable to the plummeting price of oil thanks to the degree to which the sector is reliant on gulf investment. The international price of oil has fallen over 50%, and the IMF has revised down growth forecasts for Dubai as a result. If oil prices stay at these levels for another couple of years, the impact on the gulf region’s disposable income could lead to a noticeable reduction in buyer activity in the Dubai property sector.

The strength of the dollar, meanwhile, could lead to a shift in the hospitality industry. While it is expected that Dubai will continue to prove a popular destination for tourists, international visitors are likely to become a little more frugal. This could, for example, result in increased demand for four star hotels at the expense of lower levels of interest in five star accommodation options.

Dubai has currently amassed an estimated $142 billion in debt, but future projects such as Expo 2020 may require it to increase this figure. According to Sajid Siddique, vice president of the investment banking division of Mashreq, "It’s difficult not to take on debt if you want to grow the economy and grow the Dubai infrastructure. The best you can do is to try to manage it."

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