Prices of land in freehold zones in Dubai witnessed 13% gains for the first half of this year. Investing in land in Dubai is widely being considered as a safe proposition. The limited number of land parcels in Dubai is leading to an appreciation in prices. In comparison, property prices in Dubai witnessed annual decline of around 1.2% in Q2 207 as per reports.
Over the last 14 years, residential units have been outstripped by land investments in terms of returns to the tune of 50% and more. This is a reality even after taking into account rental income returns according to experts. Experts opine that plots at well established locations like Sheikh Zayed Road, Marina, Downtown, Deira and Bur Dubai can be difficult to get hold of since these districts have become saturated. Newer locations towards the west and south of the city have greater availability with more land tracts being opened up courtesy the installation of utilities and services.
There are four land ownership types in the United Arab Emirates, namely GCC land, available freehold exclusively for UAE nationals, freehold land for all nationalities, freezone land for lease open to all nationalities ranging between 1-99 years (renewable) and GCC land for lease which is open for all nationalities and range between 1-99 years. Expats can purchase land in several areas in Dubai, particularly the major foreign ownership districts. Foreigners who wish to purchase land in Dubai for building their homes have majorly done this in places like Al Furjan, Emirates and the Palm Jumeirah. Non-GCC nationals in Abu Dhabi are usually restricted to a 99 year land interest.
Owner occupiers and developers mostly purchase plots of land in the UAE. In other emirates that have freehold classification, expats can purchase as well and examples include Tilal City in Sharjah, Marjan Island in Ras Al Khaimah and Reem Island in Abu Dhabi. According to the Chairman and Founder of the Danube Group, Rizwan Sajan, land that is ready for development is limited and supply continues going down with every new project. The master developers controlled land supply for managing oversupply better post the global economic crash according to him and this was required for sustained asset value growth. However, investor who purchased land during the boom have held onto these plots, thereby fermenting a potentially risk situation of oversupply according to Sajan.
Prices of land went down by 27% between January 2015 and December 2016 as per reports. Land transactions have gone up since 2016 but prices have started appreciate only from the beginning of 2017. Dubai has issued 38% increased construction permits last year as compared to 2015. Land prices will go higher with the increasing pace of construction work in the run-up to the 2020 Expo. When globally compared, land prices are more competitive in Dubai as compared to tier cities in America and Europe.
There are land parcels available at reasonable prices but these are few and far in between. Due to limited land supply and primary market control, inflation takes place majorly in the secondary market. Most of the land that is available in the secondary market was purchased during the boom and these price points will need several years to break even and recover, let alone making a decent profit. Sensible plot owners are getting into joint ventures with well known developers, exchanging their plots for off-plan or ready inventory, thereby ensuring improved returns according to Sajan of the Danube Group.
Experts state that investors who cannot afford to purchase plots can instead invest in well known and listed developers who possess considerable land holdings. With the continuing increase in land prices, the companies will witness an expansion in their balance sheets which will also impact their stock prices. Investors who wish to tap into land prices may use proxy means via the capital markets of real estate entities that possess big land banks as per reports.
The charge for title registration is at 4% for any property that one purchases and this is the same in case of land as well. In case infrastructure is developed in the neighborhood, the undeveloped plot service is imposed on the land owners after a particular period from the plot purchase date.