UAE Property Trends vs UK Property Trends
As we look towards 2020 and what it might bring for property markets across the globe, certain trends begin to appear that will shape property performance and investor habits going forward.
In the UK, for example, we already know that certain markets are set to continue overperforming in the new year; regional cities, commuter towns within the South East and property types that appeal to professional sharers or couples. We also know that the rental market will continue to rapidly expand, bringing with it new waves of tenant demand and a change in what residents prioritise.
International investment will be impacted by both domestic trends and those occurring overseas. The rise of mortgage enquiries into the UK from the UAE demonstrates the appetite there is for UK property despite Brexit and it’s expected that this will continue as the region faces its own challenges.
UAE Property Trends 2020
In the UAE for example, it’s expected that property will continue to stagnate as we head into 2020. According to ratings agency Standard & Poor’s (S&P), Dubai’s real estate downturn is expected to continue during 2019 and only start to stabilise in 2020, before recovery kicks in around 2021.
Similarly, S&P Global Ratings expect that prices will fall further still, coming closer to ‘levels seen at the bottom of the last cycle in 2010’. Since their last peak in 2014, rents have fallen between 24% and 33% in the UAE.
Generally, this means that Dubai-based investors will be looking for value elsewhere. Real estate contributes to 6.8% of Dubai’s GDP according to the Dubai Economics Report but with stagnation putting a damper on domestic returns, it’s likely we’ll see more investors turning their attention to international markets demonstrating better predicted growth.
In the wider market, residential sale prices in the UAE are falling at a slower rate than rents, meaning many ‘end-users’ are likely to buy property rather than rent according to JLL. Within the JLL UAE Property Market report, we see that rent prices fell by 11% during Q2, while sale prices fell by around 9%. For Buy-to-Let investors focused on generating consistent returns, this obviously proves problematic.
This may be why the majority of mortgage enquiries that Skipton International, an offshore bank specialising in expat and UK mortgages, fielded during 2019 came from the UAE. With Brexit uncertainty holding many UK buyers back, savvy UAE investors are seeing an easy route in finding value within the UK market.
Also consider that over the last 18 years, Dubai’s number of households has grown from 156,000 to 560,000. This level of growth is set to continue between now and 2035, with predictions by Oxford Economics suggesting that 176,000 additional households will be created.
According to Matein Khalid, Chief Investment Officer at Asas Capital: “The smart money consensus in Dubai property is for another 10 – 15% decline in prices amid a crash in rents, spikes in vacancy ratios and an accelerating pipeline of oversupply.”
This has created a much more saturated market, with plenty of supply in the pipeline. Although the population is growing quickly – between 2010 and 2018 Dubai’s population rose by 1,230,924 – there’s such an abundance of properties that urgency is never really an issue and investors won’t find the same levels of growth that you might see in markets such as the UK, where competition is pushing property prices and rents higher.
UK Property Trends
It helps that the UK is still seen as a robust and secure property market. Around 1 in 3 UAE respondents to the 2018 SevenCapital Brexit Survey highlighted the importance of stability in an investment market – an attribute that the UK property sector continues to provide investors.
At the same time, UK property represents an opportunity to find an excellent deal on property, stretching the local currency much further. Considering that in 2016, prior to the referendum, the average London property cost around Dh2.7m compared to today’s price of around Dh2.2m – a huge change based purely on fluctuations in the exchange rate and the sector still recovering.
Finally, residential undersupply is widely considered the main challenge facing the UK market and fully highlights the opportunity that a UK property in a key area can provide. Aside from rising rents, undersupply will typically result in lower vacancy ratios and rising prices as quality developments attract quality tenants.
Similarly, regeneration in key locations is drawing attention away from a declining capital and ensuring that cities such as Birmingham are harnessing the increased demand. This is particularly apparent where regeneration is impacting infrastructure, such as the HS2 line in Birmingham or Crossrail in the South.
How do UK and UAE Property Trends Compare?
The term “buyer’s market” has commonly been used to indicate the phase that the Dubai property market is experiencing. Unfortunately, despite the wide inventory selection and increased supply line, forecasts are still showing that Dubai-based property will struggle to deliver strong yields and growth until 2021. While buyers can find affordability right now, there’s no guarantee that returns will appear until at least two-years down the line.
The UK market, on the other hand, is demonstrating the opposite. While affordable is a term that can definitely be applied to certain UK regions, the market itself is suffering from chronic undersupply. The competitiveness of the market also means that UK properties have the potential to generate consistent immediate returns.
A weakened Sterling means UAE investors can leverage their money further from the get-go and affordability in certain regional UK areas means yields are much higher than you would usually expect.
Now look at this prediction measured against a quote from Sapna Jegtiani, a credit analyst with S&P: “We think residential real estate prices could decline by 10 per cent to 15 per cent (in Dubai) in 2019 and a further 5 to 10 per cent in 2020. In this case, we see no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply.”
It’s important to remember that property is a ‘long-term’ investment and rarely witnesses extreme shifts in performance. As a physical product, it’s typically more secure and resilient to external market influences than other investment assets.
So what’s next? As previously mentioned, the recovery of the UK’s property market from external factors is well documented. Prices in London alone skyrocketed by 70% after 2009, making it one of the most lucrative assets in the world. With Dubai’s real estate market on the rocks and rental prices taking the brunt of the fall, maybe now is the time for UAE investors to start considering how the UK can play a part in their financial future and start their property portfolio.