Historically, the Dubai real estate market has experienced cycles.
In 2005 we had a major spike which resulted in a crash in 2008. It didn’t take long for the market to recover and in 2014 we were again at an all time high, only for the market to recover. collapses in 2018. The year 2021 has seen real estate again at an all time high which only leads to speculation of when will it crash again.
I don’t believe it will – there may be a slight correction, but I think the days of the big dips are over. Today’s market is more mature. Today, an investor can build a portfolio and achieve double-digit growth on their investment, even in a downturn.
Here are the investors we are currently seeing in the Dubai property market:
1. The old-fashioned palm: They are the ones who made millions during the real estate boom of 2004 and 2005 by buying pre-launched real estate and flipping it for triple-digit returns within days or weeks. By the time the property reached the end user, its value had doubled or tripled – the main reason the markets have always corrected. These investors will see fewer opportunities as the developers themselves are taking advantage of early flips at the moment. This translates to better projects being built.
2. End user: They form the basis of any real estate market in the world. With Dubai’s population continuing to grow, end users will still occupy a large part of the space and create the necessary stability.
3. Investors looking for yield: This is the investor who lost in Dubai over the past year. With laws supporting the tenant, it has also become very difficult – if not impossible – to evict a tenant who pays low rent, reducing the return for the investor. For this investor, a return of 3 to 5% is simply not attractive enough.
The vacation rental market has brought multiple benefits to the Dubai real estate space and that is why I think the days of major accidents are long gone. I think you’ll see steady growth and slight corrections – if any – over the next several years.
As an investor looking to grow a portfolio and earn a fixed income on their investments, short term rentals offer an 8-15% return after all expenses. Another advantage is that the property is also well maintained and easy to sell unlike when given to a long-term tenant.
With these kinds of returns, it is an attractive investment area for large funds and family offices.
Real estate in Dubai is also undervalued compared to cities around the world. And for this reason, investors can potentially double their money over a five-year period through short-term rental income and property appreciation.
For comparison, if you get a one-bedroom apartment on Palm Jumeirah or JBR in a building that has access to a private beach, you’re looking at an investment of around $ 650,000. The same quality apartment in LA, Miami, New York or Barcelona would cost between $ 1.5 and $ 2 million.
The combination of finally increasing supply in Dubai and short-term rentals will redirect the market from a major crash into a downturn, only to pick up again a few years later.
Dubai’s real estate market, over the next 10 years, still has a lot to grow as new projects continue to be announced. But I’m sure 10 years from now, taking inflation into account, you won’t have the same T2 at $ 680,000; we would have reached global levels by then, and that same unit will be worth over $ 2 million.
Vinayak Mahtani is the CEO of bnbme vacation homes