Real Estate and Its Future – 2018

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The World Economic Forum published a Global Competitiveness Report 2017-18 in which the United Arab Emirates was ranked as the seventeenth most competitive country in the world. Further, UAE is also at the forefront of the digital revolution in the Middle East. With state-of-the-art infrastructure and competitive rates, the UAE has certainly maintained its reputation of being a country with relative ease of doing business. An increase in business also leads to an increase in the demand for real estate properties both residential and commercial. In this article, we will take a look at the future real estate landscape in the UAE.

According to Ken Research, the real estate industry in the UAE is highly competitive and fragmented. However, it is slated to grow at a CAGR (Compound Annual Growth Rate) of 6.4 percent during the period between 2015 and 2019. It is a promising period for both international and domestic investors. In the near future, the following three market factors would shape the real estate market in the UAE:

Blockchain Technology

2018 started with a new trend in real estate in Abu Dhabi and Dubai – buying and selling properties for cryptocurrencies. This trend of adopting blockchain technology in the real estate sector might have a disruptive effect on the real estate segment. With the Expo 2020 just around the corner, there is an increased demand for properties in Dubai – especially in areas around the event. Keeping in view the emergence of blockchain technology for real estate transactions, Dubai launched its first blockchain-based cryptocurrency – emCash. Transacting in cryptocurrencies eliminates paperwork and increases the speed of real estate transactions. This is also being supported by the Dubai Land Department who released a statement claiming to be the world’s first government agency to use blockchain technology for real estate transactions.

An Expected rise in Real Estate Investments

In recent years, global financial downturns, fluctuating oil prices, and political turmoil had resulted in the fall of prices of real estate properties in the UAE. However, Dubai gearing up for the Expo 2020 and projects like Dubai Creek Harbor, Dubai Land, Dubai Water Canal, and MBR City by which property prices are expected to stabilize and grow in the coming years.

 

Also Read: What are the options of Investing in Real Estate?

The Impact of the Co-working Culture

In recent years most of the countries around the world has gained momentum in the co-working sector. Several dormant areas in Dubai, Sharjah, Abu Dhabi, and Ras Al Khaimah are now being offered as co-working spaces. Also, it is not just the freelancers, small startups and entrepreneurs who are looking at such properties. Investors who are aware of this trend are eyeing residential, commercial, and shared office properties as a planned investment.

In Dubai, since many foreign companies have already set up their offices in business districts like Downtown and the Dubai International Financial Centre (DIFC), many freelancers and small startups find it a good place to establish their work.

This co-working segment is expected to have a huge impact on the real estate sector in the UAE for multiple reasons:

  • Increased demand for properties (residential, commercial, and shared working spaces) leading to a drop in property vacancy rates.
  • Better commission deals for landlords and estate agents.
  • Better networking with freelancers and entrepreneurs allowing landlords more options for offering their properties on rent.

What is the Future of Real Estate in the UAE?

According to Deloitte’s Middle East Real Estate Predictions 2018, last year, the following factors established Dubai as a truly global city with great opportunities for real estate investment:

  • World-Class Infrastructure
  • Development of a legal and regulatory environment which is business-friendly
  • Establishment as a hub for global events
  • Real Estate finance continued to be available for qualifying projects/developers.
  • The emergence of non-banking finance companies as alternate sources of finance for developers
  • With an aim to reduce the costs of materials and labour used for construction, by 2025, Dubai plans to have all new buildings 25% 3D printed
  • The Dubai Land Department has taken steps to adopt the blockchain technology within its electronic real estate platform for purchases, mortgages, and property management

Also Read: Why Dubai Real Estate?

The introduction of VAT from January 1, 2018, can offer the following challenges:

  • Rent-free periods are a common occurrence in Dubai where landlords offer such incentives to attract and retain tenants. However, post-VAT, such lease incentives could be liable if they are offered in return for an inducement.
  • In order to increase sales, most builders are already working on small profit margins. With the introduction of VAT on construction materials and professional services, many real estate developers might experience cash flow pressures.

Based on these factors, the following predictions are made by the report:

  • Dubai will evolve further and become better connected with the global economy.
  • The development finance market will stabilize and also see the emergence of non-banking options.
  • Many new technologies will have an impact on the real estate market like 3D printing, blockchain technology, etc.
  • VAT will play an important role in determining the performance of the real estate segment in the UAE.

Summing Up

Over the last few decades, multiple factors have created an impact on the real estate sector in the UAE. However, the industry has managed to remain strong and offered great investment opportunities to investors. With the Expo 2020 lurking around the corner and technology making its way into the industry, the future of real estate in the UAE looks promising. As an investor, we recommend that you talk to an investment advisor and consider adding real estate to your investment portfolio soon.

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