UAE Properties: Who is buying, and should you?
THERE is clearly movement in the property market across the UAE and generally it is in an upwards direction. Prices are up, sales are up and banks are indicating mortgage activity is up. But who is buying?
According to the Government of Dubai Land Departments, total investments in the Dubai Property sectors by GCC, Arab and Foreign investors reached AED 58.6 billion in 2012. The number of individual investors reached 18,635. Of these 13,573 were foreign investors who were responsible for AED 36 billion (61.4%). Indian nationals were the largest foreign investors accounting for AED 9 billion (15%). UAE nationals were the largest investors with AED 13 billion (22%). For a full breakdown refer to the tables at the Land Departments website.
The interesting aspect is who these investors are and should you be joining them if you have not already? If you are an expat, poll your family and friends - it will be surprising if 3 out 10 are buying a property in the UAE, yet the Land Departments figures indicate 75% of Dubai properties are being purchased by foreign investors.
What makes the upturn in housing unusual is that it is mostly being fueled, not by consumers buying a first or even a second home, but by investors scooping up new builds and low-priced properties. Savings rates and bond rates are very low so hedge funds, private equity firms and other investors looking for a better return on their capital have moved aggressively to buy single- and multi-family homes.
In most developed countries property sales are 30% cash and 70% mortgage. Investors differ from ordinary home buyers in two notable ways: they can pay cash for properties, and they buy in bulk. And at least one report indicates that 70% of Dubai property deals are in cash.
Excessive behaviour explained
One of the biggest likely buyers is the Takaful industry. Real estate (and Sukuk) are traditionally the most popular forms of Islamic investment, and 2012 has shown little sign of bucking this trend – so-called Real Estate Investment Trusts (REIT’s), or the Islamic Finance equivalent, Ijara funds. Ijara (which are similar in nature to REIT) funds aim to lease out assets they purchase, such as real estate, and have long been seen as safe havens with good returns.
Takaful providers follow strict compliance investment criterias, as global property management company Frank Knight attests: “The lack of suitable Shariah compliant investments is probably the biggest challenge operators are facing.” As all UAE real estate is subject to Sharia Law, it goes without saying that the majority of REITs investing in the UAE market are Shariah compliant and very attractive to Takaful funds. The rating agency Standard and Poor’s wrote in their Islamic Finance report in September 2012 that the restrictions on suitable investments for Takaful providers: “can sometimes be seen as encouraging excessive premium expansion…. notably in shares and real estate”
Is this why the real estate rebound can be seen to be excessive? Lack of compliant investments for a growing Takaful industry it is plausible. Rational investors would not jump into the property market now - instead they would take out a Takaful policy to spread the risk and share in the rewards.
Pic credit: freedigitalphotos.net
WILL YOU dip your toes into a market that is currently at pre-bubble prices or are you wary and giving the UAE property market a miss until the exuberance abates? Tell cashy below!