Real estate looks all set for higher growth cycle in 2017
Visitors look to the Downtown project models in Emaar pavilion during the Cityscape, which concluded last week.
The real estate market in Dubai will stage a strong rebound in 2017 and experience a higher growth rate by 2020 due to effective measures taken by the regulators in recent past, says an industry expert.
Pawan Dhawan, head of Home Finance at Noor Bank, said potential buyers and investors are determined to take benefit of the present market sentiment and expand their portfolio by taking strategic advantage of lower rates.
"I believe that by 2017, the market will see further traction and there will be even greater growth by 2020," Dhawan told Khaleej Times on the sidelines of Cityscape Global last week.
The 15th edition of Cityscape Global, which concluded successfully on Thursday, showcased some of the most spectacular real estate developments from across the region. About 300 exhibitors from 30 countries displayed property projects worth billions of dollars during the three-day exhibition attended by approximately 40,000 visitors and delegates.
Demand for home finance
Dhawan said the home finance market certainly has a direct correlation with the real estate market. The outlook on the sector depends on a variety of factors, such as economic growth, infrastructure spending, oil prices, liquidity, absorption of the new real estate supply and prevailing market sentiment.
"As banks are becoming more innovative in their approach and roll out more flexible solutions to cater to the ever changing demands in the sector, I see the home finance sector as more evolved and mature. This will in turn feed into a more stable real estate market overall," he said.
Dhawan said home finance loss ratios fare the lowest as compared to other asset financing products across the personal banking industry. A healthy portfolio with good quality clients and prudent practices does not yield more than 0.5 per cent loss rate on the portfolio overall. Noor Bank has zero loss rates on its home finance book.
For a while now, Dhawan said the home finance market has been in a 'wait and watch' mode due to the current contraction in the real estate sector. In the past 12 to 18 months, market cooling measures, dampened market sentiment, decline in oil prices, strengthening of the US dollar against other currencies, excessive supply and various other factors have affected transactions.
"Despite this however; we have seen an increase in re-sale as well as primary purchase transactions over the past three to four months, across multiple property segments, which has led to a growth in home finance transactions. We believe that the segment will see improved traction by 2017 and that the real growth will be seen with the run up to the Expo 2020," he said.
Referring to latest data released by the Dubai Land Department, he said total real estate transactions in Dubai during first half of 2016 are amounted to Dh113 billion, achieved through 28,251 sales, homes finance and other transactions.
"One of the key factors spurring growth, was strong rental yields and flexible payment plans offered by numerous developers. These conditions are encouraging many tenants to become homeowners and thereby also increasing demand from end users for home finance," he said.
To a question, he said the central bank regulations have helped to prevent any indiscretion from banks -- and banks are now required to offer clear financing terms.
"This means that potential home owners are asked for further appropriate documentation when processing a financing application and even customers with good credit history can expect extensive due diligence when applying for a finance," he said.
While the money spend in the market might be less than previous years, Dhawan said regulators are now playing a vital role in curtailing risk, both for banks and customers.
"One example of the central bank helping to bring stability is in the off-plan sector, which was contributory in generating huge losses to the banking and real estate sector in 2008. However, due to the stringent regulations now in place, buying off-plan property is more structured and less risky. For example, developers are obliged to provide guarantees to escrows and construction linked payment plans, and clients are required to contribute 50 per cent towards the purchase price before any finance is disbursed by the banks," he explained.
According to various market experts, the residential market will remain under deflationary pressures during the remainder of 2016, with weaker demand leading to further decline in both sales and leasing rates. He said potential buyers and investors are determined to take advantage of this slump in the market and expand their portfolio by taking strategic advantage of lower rates.
"During the past few months we have seen an increase in property and home finance enquiries, especially for affordable developments. Policy-makers, real estate developers and others have diligently worked together to provide housing solutions for the middle income market by launching new affordable developments. These new developments have helped widened the pool for home buyers, thus increasing home finance queries and transactions in this particular segment.
"The Dubai property market has also continued to mature and stabilise in other ways; as a result of setting up the Etihad Credit Bureau, strategically implemented government regulations, including the increased property registration fees and home finance ratio and amount caps are contributing to a market with fewer speculators," he added.