Q2 Review with Lewis Allsopp, CEO of Allsopp & Allsopp Real Estate

Lewis Allsopp started Allsopp & Allsopp Real Estate in 2008 alongside his brother Carl Allsopp. Since operating as a real estate broker prior to the firm’s inception, Lewis talks us through the market now at the end of Q2 2015, and where the Dubai property market is heading.

What is the most significant change when comparing Q2 to Q1 of this year?

There has been a shift in attitude from our sellers; earlier in the year, the tone when speaking to clients overall was far more anxious with many people willing to accept lower offers for fear of a significant market fall. Fortunately, the price drop hasn’t been as dramatic as some were speculating, and recently, we’ve seen a change towards setting realistic asking prices our sellers would be happy to sell for and working towards that.

Has the market seen a correction since the beginning of the year?

The fairest way I find to look at the market as it stands is to split Dubai into two categories, established and off-plan communities, and look at how they are currently performing:

Off-plan / less established areas: in this, I’d include Arabian Ranches 2, Mudon and Sports City to give some examples. They provide excellent rental returns, are primarily tenanted with little surrounding landscape, and fewer facilities. Generally, they’re driven by seasoned investors, it’s these areas which are seeing the correction more heavily and could continue to do so. I’ve even seen negative premiums available in the off plan market, with popularity wavering in this sector. Developers are now gearing their marketing towards end users, by offering attractive payment plans such as ‘pay 1% per month’ on off-plan units.

Established areas such as the Arabian Ranches, Victory Heights, and The Meadows have outperformed in terms of price stability and demand. These mature communities aren’t only more desirable to actually live in, but homeowners in the area and buyers looking in the area have different priorities; their focus generally is more on their needs as a family than driven by a percentage yield. As a company, this is what we deal with most for our clients. It’s the sellers who are realistic in their asking prices, and understand that while they may be selling a little under what they expected, they are also making their onward purchase for less than anticipated.

Overall yes, the market has seen a correction across Dubai; as markets do when demand rises rapidly through speculation, they correct and stabilise, settling ultimately more attractive to would-be homeowners than before. But not to the extent that was feared, and we haven’t seen a further decline certainly in the latter stages of Q2.

With new projects being launched and handed over, is there a surplus of availability?

For buyers, it’s important to note that while the market may have settled in terms of price, the availability of desirable, well-priced properties in the market has decreased. Less sellers with well located, upgraded properties are willing to sell, knowing that they must be realistic in their approach to the amount achievable for their home. Premium properties aren’t being made available to buyers in the supply which the market demands.

I can understand why some may be under the impression of surplus availability; this is the case in newer areas which are either still under construction or handing over. But any golf course or desirable family oriented development with parks, pools and established communities is the absolute opposite in terms of availability.

Are there remarkable deals to be had in the market now?

The key is to be realistic in your approach to both buying and selling. There hasn’t been the influx of ‘under market value deals’ to the level some buyers would have liked to see. When faced with what appears to be an exceptional deal, if you’re not a seasoned investor; seriously consider the location.

If it’s not in a prime location within the development, if it’s under market value now, it will always be lower than the average property in the area.

My advice would always to be to buy in the most desirable area you can afford, even if you have to compromise on the property; you can change the interior, upgrade and sometimes extend, but the location is constant. Those who chose a location within a development as their priority are being rewarded now with popular units which have held their value. What ‘under market value deals’ are available, will likely be poorly located.

Are there any circumstances which can hinder a property sale?

Tenanted properties can potentially carry the foremost hindrance when it comes to selling your property, especially if a landlord hasn’t communicated effectively and politely with their tenant. It’s important to understand a tenant can be instrumental in achieving a sale. Accommodating tenants can help sell your property, without them the listing would have no photos, and buyers may not be allowed access. Be sure to keep tenants informed if you’re thinking of selling, and use one or as few agents as possible as to not bombard them with calls and viewings. This way when it comes to negotiating a sale, they will be far more inclined to accommodate and can be more flexible.

The Dubai market is known for its high percentage of cash purchases, is this still the case?

If you’re to take the official figures in terms of cash vs mortgage purchases, you’d have around 80% of purchases listed as cash and only around 20% bought with finance. If you’re to delve deeper into the numbers you’d quickly see these include off-plan and plot sales which either can’t be financed or are heavily restricted by finance. The side of the market we’re involved in speaks differently, with the market being far more leveraged on mortgage purchases. Our actual figures show that 73% of our transactions involve finance, which for me as a company and as an investor here, is more important to building a stable and accessible market than one flooded with cash and off-plan sales.

How does this differ from the Dubai property market in 2008?

Heavy cash purchases are reminiscent of the market around the time we first started trading seven years ago; when the market’s foundations were built on payment plans, investors focused on flipping properties quickly, with cash investment, high risk, and high potential returns. A market geared on mortgages is closer to that of the well-established markets in Europe and the UK, one where purchases are made with the plans to live in, make a home, rather than buying several floors in an unbuilt tower in the hope you can sell it for a premium before the next payment is due.

With the Central Bank restricting the LTV on purchases, they’ve successfully created a real estate economy with manageable finance. A recent report by property portal Bayut highlighted the slow global growth predicted by the International Monetary Fund, that “global powerhouses like New York and Singapore lost 4.4 percent and 12.6 percent of value, respectively between March 2014 and March this year, compared to only 1.1 percent in Dubai.” This is a long way from a few years ago when global media predicted only sand would be left of Dubai in the not so distant future.

Some people believe the market is slow, how do you find it as a company?

May 2015 was our highest achieving month as a company in eight years of trading in Dubai. We have the same number of staff as last year and cover the same areas, but in May 2015, we sold more properties than in any month since inception, selling over 215million Dirhams worth of property. This for me is absolute that not only is our formula working here, but the market is flowing successfully. We are coming into our own as the market leader, operating a UK style practice, one which is increasingly suiting more clients and their circumstances.

We also learned recently that we were involved in more sales transactions at the Dubai Land Department than any other agent, selling considerably more properties than second place. We have opened our second office in the UK, and in 16 months have become the market leader in Coventry. It may be a reflection of our company moving forward, but for me, it’s a solid indication this market is moving in a very positive direction.

What are your predictions for Q3 2015?

I remember reading a report from a world leading bank shortly before we opened the doors at Allsopp & Allsopp seven years ago, stating that Dubai’s property market was ‘recession proof’ and one of the most solid in the world. One month later, the market crashed. It’s difficult to make predictions in this region, but I can gather my projections from the market as I see each day. I do believe the market has reached its lowest point and has the potential now to move into positivity. Spending by Government on infrastructure can only benefit Dubai’s investors, reassuring foreign investment in the Emirate, as well as those already living and working in the city.

We also must remember that since 2008, Dubai recovered at a speed which most of the major global cities would envy, its ability to rebuild itself while factoring in new regulations from the Dubai Land Department and Central Bank regulations, Dubai came back stronger and is now in a position not to be caught out again. It also offers investors far greater yields than expected around the globe, the Global Property Guide believes that rents in Dubai are among the world’s highest, yielding an income of 7.21 percent as compared to 2.72-3.20 percent in London and 2.83 percent in Singapore.

It’s a bold statement to make granted the figures published in the press, but being on the ground in the real estate market allows me to confidently say we have sold more houses and registered more buyers than ever before in recent months, and are ever achieving close to seller’s asking prices. I believe we will continue to see this level of activity. I am extremely pleased to see Dubai emerge into maturity, moving forward into a stable market with a bright future and growth ahead.