The Struggling Real State Sector of UAE - Seeker's Thoughts

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The Struggling Real State Sector of UAE



Once the real state sector was the main driver for economic growth but at present, the sector has to take the support of the economy and its diversification efforts in order to survive. 

As support, the government in the Budget 2020 to 2022 allotted 46% for the economic, infrastructure and transportation development.

                          

To help the real estate sector, the Central Bank has been working on new rules that will loosen the cap on bank lending to the struggling real estate industry. At present UAE lends 20% of customer’s deposits to the property industry.  

The higher committee headed by Sheikh Maktoum Bin Rashid Al Maktoum to safeguard Dubai’s real estate market for the next decade -  by balancing supply and demand was formed to bring reforms in the real estate market.



Why has the real state sector been developed?


There were two main reasons for the real state sector to be developed, the first reason was to turn the various emirates into metropolises so that the country will grow and attract residents to contribute its economy.


 The second reason was to attract the investors to UAE.




What happened to the real estate market?


With time, the market became over-saturated as various large scale projects and rental units arrived in the market.  There is an apparent oversupply in the market.  Some of the developers piled up units and did not sell them.


The unsustainable price growth of the previous two years coupled with falling oil prices and a weaker US dollar pressured Dubai’s real estate cycle to go into a correction phase.


                                   
On the other hand, off-plan sales surpassed those of existing properties within established locations of Dubai, causing capital values of ready properties to decline as investors favored competitively priced payment plans over the capped mortgage LTV and higher down payments.



The ValuStrat Price Index saw residential capital values decline 29.3% since the peak of mid-2014 as a result of which Dubai has become a more affordable buyers’ market.





How did the real estate market connect investors and residents?


Investors were attracted through a range of real estate projects that align with different investing Budgets.


On the other side, for residents, this provided growth in the number of rental units every year.


Is it the end of the Real Estate Boom?


More than assuming that the Real Estate Sector has declined, there is a need for a market correction.


There is a need for a better understanding of the supply and demand of the market. The market needs a balance of supply and demand, and the government needs to limit the supply in the market as a whole.


The progressive real estate tax certainly will help in controlling the inflation, as well as, there should be rules for developers not to pile up’ unsold and unreleased units.



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