For Dubai, real estate is critical but challenging resource

In no other country real estate is of such a critical asset as in Dubai where 20% of GDP is contributed by this sector coupled with associated construction. Fluctuation of its value is universal and need to be factored in. Yet there is no clear business strategy to manage the challenges real estate poses to the functioning of Dubai economy.

The 2009 economic collapse is point of reference. This fall was fuelled by speculation that real estate value would bottom down as there was free fall in the price of properties across the board. The result was horrendous; no takers for unsold stock and off-plan property. Selling pressure in occupied ones add to the trauma. It metamorphosed as financial collapse and fortunately a bail-out of US$ 10 billion saved Dubai.

It took almost five years to stabilize price level and in fact by 2014 real estate reached its peak in terms of value and number of transactions as well the general price level. The next five years experienced once again the dip, albeit not bad as in earlier times. By 2019 real estate almost shed 27% of value. This five year cycle of boom and bust merits serious study by Dubai.

Real estate is the backbone of the economic powerhouse of Dubai. Right now it looks good. In 2018 real estate contributed 13.6% to the GDP while construction added 6.4% cream, totalling in almost one fifth of the economic contribution. In 2018 real estate transactions numbered 52,500 at the value of DH 204 billion. Corporate buyers/investors account for slightly above 40% of the transactions especially in Business Bay area. That opens up the Pandora box.

Corporate go for large space and in central business areas where the land is fairly limited and the land use is concentrated in the hands of few. Typically these companies do not favour buying up residential units except for few property investment companies.

What is necessary is to increase the land use for residential purposes where flat owning population grow tremendously and the rented properties take only second place. To do that there must be well thought out plan to stimulate real estate spending by UAE nationals as well as expatriates. According to estimates nearly 45,000 housing units are to enter the market in 2020. Managing the challenge of supply outstripping demand for housing units in particular and real estate in general is the need of the hour!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist