Dubai’s off-plan market a crucial factor to watch, says Firas Al Msaddi

Co-founder and CEO of fäm Properties, Firas Al Msaddi, took the stage of Gulf Business‘ first-ever Business Breakfast briefing on Wednesday to give his take on key factors to watch when it comes to the Dubai real estate market.

Having founded fam Properties in 2009 with his brother, Al Msaddi speaks from a place of authority when it comes to the property market, especially as he weathered the downturn that came amid the Great Financial Crisis (GFC). A key factor that he says is important to watch is the gap between off-plan and resale market prices. As he explains in his speech, this can be a key indicator of the state of health of the local real estate sector.

READ MORE: Dubai real estate has moved past severe cyclicality, says fäm Properties CEO

He explains more in his speech, which took place on 12 June at the Grand Plaza Mövenpick Hotel in Media City, Dubai. You can watch that speech in the video below and read an edited transcript as well.

12 June 2024, Gulf Business Breakfast Briefing, Grand Plaza Mövenpick Hotel in Media City, Dubai

Speech by Firas Al Msaddi, co-founder and CEO of fäm Properties

Good morning, everyone. It’s a pleasure to be here today. I want to express my gratitude for the insightful contributions from our panellists earlier and from our superstar Atif. Thank you. I’ll keep my remarks brief. While I’m not a tech or data expert—credit for our tech and data initiatives goes to my brother, who leads Farm Properties and DXB Interact — I specialise in monetizing opportunities. And today, one of the biggest opportunities lies in tech and data.

Allow me to share my two cents on the Dubai real estate market, insights that I hope will prove valuable to those involved in this industry in any capacity.

So, here’s what’s happening in the market as of Q1 2024: We’ve seen 165,000 registered transactions, which is double the number from Q1 last year and triple that of Q1 2022. In terms of transaction value, it’s doubled compared to 2022, with today’s recorded sales transactions totalling Dhs186bn. The month of May alone has also been impressive, clocking in Dhs45bn worth of sales.

Several factors have fuelled this robust real estate market, and I believe they will contribute to its sustainability. First and foremost is inflation. It’s no longer a secret or a sophisticated topic: everyone feels the impact, with the diminishing purchasing power of money becoming evident. Real estate has emerged as a preferred investment choice because it offers a straightforward way to preserve and grow wealth. Simply holding onto land, which requires zero operational or management effort, has resulted in significant appreciation, doubling and even tripling investments in Dubai.

Let me give you an example to illustrate the remarkable growth in Dubai’s real estate market. A few years ago, a piece of land on the canal side was purchased for Dhs400 per square foot of gross floor area (GFA). This year, the same land was sold for Dhs1,700 per square foot. That’s a staggering increase from Dhs40m for 100,000 square feet to Dhs170m. This appreciation has been incredible and requires minimal effort on the owner’s part. Of course, thorough due diligence is necessary during the purchase, but once acquired, there’s little to no maintenance needed.

Two major factors have contributed significantly to this surge. First, inflation has prompted people to seek investments that preserve and increase their wealth, and real estate in Dubai has proven to be a straightforward and lucrative option. Second, Dubai has solidified its global standing like never before. The city attracts worldwide attention as it continuously develops and remains exceptionally customer focused. In the competitive landscape of client experience, Dubai has excelled, outperforming many other global cities. This confidence in Dubai’s growth and commitment to client satisfaction motivates me both as a real estate investor and a business owner to further expand my ventures in this dynamic city.

Number three, the regulatory environment in Dubai represents a new era of transparency and confidence. The democratisation of data transparency has significantly boosted foreign investment and instilled trust among real estate businesses and individual investors alike. This regulatory framework has spurred increased demand both in off-plan properties and the retail market. The rental market is currently performing exceptionally well, encouraging more investors to enter the real estate market to secure rental income.

Many people speculate about when rental prices will decrease, but it’s essential to understand that a decline in rental prices can indicate economic weakness. It may suggest either a decrease in population or an imbalance between supply and demand. A healthy rental market, like the one we are experiencing now, indicates a thriving economy. As long as the rental market remains robust, the overall real estate market in Dubai will continue to flourish. It’s important to note that the real market strength lies in end-user transactions rather than speculative off-plan investments, although the latter presents lucrative opportunities.

And now, regarding where we stand today, it’s evident that we’re experiencing an all-time high in both demand and supply within Dubai’s real estate market. As Atif mentioned earlier, while focusing on the positives, it’s crucial not to overlook the associated risks and potential challenges that accompany such peaks.

One key indicator that forecasts the direction of the market over the next few years is the disparity in prices between the off-plan and resale markets. The wider this gap, the greater the risk I perceive. The off-plan market typically caters to investors, benefiting from Dubai’s strong global reputation and desirability. However, upon project completion and handover, if there isn’t sufficient uptake from end-users, it indicates potential strain in the rental market, diminished income opportunities, and heightened expectations from off-plan buyers. Consequently, this sentiment can negatively impact both the resale and rental markets, eventually affecting the off-plan market as well.

Observing the bustling roads of Dubai provides me with a sense of reassurance. It indicates that more than ever, the market is increasingly driven by end-users. Despite the influx of new inventory, rental prices remain significantly higher than in the past, reflecting a correction from previously unrealistically low levels. The balance between supply and demand stands as the cornerstone of this equation. Moreover, technological advancements are accelerating the pace of transactions and transforming the competitive landscape of the real estate market. The integration of data and technology enables us to achieve unprecedented levels of productivity and efficiency.

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The real estate market in Dubai stands as a cornerstone of the economy, with productivity increasing despite unchanged working hours. Looking ahead, the next three years promise to be exceptionally intriguing, characterised by Dubai solidifying its new position without the severe cyclicality seen in the past. A notable insight came from a recent discussion with a colleague who emphasised a shift towards developing what can be delivered with quality, not just what can be sold—an ethos shared among responsible developers mindful of construction timelines and end-user satisfaction.

Moreover, recent regulatory changes have significantly impacted the market dynamics. Over the last three months, stringent laws governing online property advertisements have come into effect, leading to the removal of improperly listed properties and enhancing market transparency. This regulatory overhaul has streamlined supply visibility, addressing issues where multiple listings for a single property artificially inflated market perception and decision-making speed for potential buyers.

Looking forward, initiatives are underway to further enhance regulatory frameworks, ensuring sustained market health and stability. It’s crucial for market participants, including ourselves, to maintain a balanced approach, avoiding overexposure, particularly in the off-plan segment. While off-plan investments are pivotal for funding construction, any slowdown could potentially impact profitability significantly.

In conclusion, the current market environment in Dubai appears robust and forward moving. While everyone is scaling operations aggressively, caution and prudence should guide decisions to mitigate risks effectively. Thank you for your attention, and I trust this insight will prove beneficial as you navigate the evolving landscape of Dubai’s real estate sector.