House price growth in Dubai appears to be slowing, with a bottoming out in the market likely to happen at the tail of 2016, according to international real estate consultancy Cluttons.

The values for both apartments (down 0.8 per cent) and villas (down 0.5 per cent) dipped marginally during Q3, marking the fifth consecutive quarter of price falls, stated Cluttons in its Dubai 2015/16 Winter Residential Property Market Outlook.

House price declines in the region of three to five per cent are expected over the next 12 months, impacted by faltering global growth and supply levels creeping upwards, it cautioned.

But at the same time infrastructure investments planned around the looming Expo 2020 will boost the rate of job creation and the rate of new households created, it added.

Steven Morgan, the chief executive of Cluttons Middle East, said: "We expect 7,400 units to complete next year, 10,300 in 2017 and a further 13,600 in 2018, with the new schemes launched during the past quarter, helping to even out the balance between villas and apartments.

"Over the next three years, 48 per cent of the units delivered will be villas," he pointed out.

The winter report highlights that away from the top end of the market, the vast majority of residential submarkets have seen little or no change in values this year.

This is partly attributed to the steady appeal of apartments to the buy-to-let investment community and reflected in by the total number of apartment transactions during the first nine months of 2015 being 6.6 per cent higher than the same period in 2014, stated the expert in the report.

"We have seen the popularity of off-plan property sales persist, partly fuelled by the fact that off-plan residential property prices are often 20 per cent to 30 per cent lower than completed secondary stock, which in essence might allow buyers to bypass some of the stringent lending criteria and also possibly avoid the need for a mortgage altogether," remarked Morgan.

Since the introduction of the Federal Mortgage Caps almost two years ago, the issue of affordability and accessibility to Dubai’s housing market has dominated headlines, he added.

Faisal Durrani, the head of research at Cluttons, pointed out that several developers have brought schemes to the market that they present as being “affordable”, but true affordable housing remains a vastly underserved segment of the market.

"The authorities need to formalise the definition of affordable housing, in terms of those who could qualify and the type of housing that needs to be created, otherwise there is a real danger that the term ‘affordable’ will be permanently diluted," observed Durrani.

According to analysis carried out by Cluttons on the UAE Ministry of Economy’s 2008 Household Income Survey, average annual expat incomes across the UAE currently stand at around Dh199,000.

Average residential rents in Dubai’s freehold areas at the end of third quarter stood at Dh181,000 per annum, highlighting the disparity between incomes and the cost of housing.

According to the Cluttons’ report average mortgage multipliers in the region are around three to four times average income.

"In the UAE this is approximately Dh600,000 to Dh800,000 ($163,312 to $217,749), which would typically buy a studio or one-bedroom apartment in peripheral submarkets such as International City, IMPZ, Dubailand or Dubai Silicon Oasis, leaving many people little option but to continue renting," stated Durrani.

"The rent-to-own model has been successful in the past and has the added advantage of helping developers build an income generating portfolio that could potentially be traded as investment grade stock. Such tenanted asset sales are common in the city’s commercial market, but we are yet to see this in the Dubai’s residential market," he explained.

Cluttons said the tenants could take comfort in the fact that rents had for the most part stabilised, with no growth recorded during the quarter.

This now leaves average rents across the city’s freehold areas 3.2 per cent down on the same time last year with the biggest declines recorded by low-end three-bedroom villas, encompassing the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa, where rents slipped by nearly six per cent between January and September, it stated.

The report also references Rera’s rent calculator, which will now be updated on an annual basis, and highlights how it shows signs of being out of sync with market reality.

“It has served as a useful barometer for tenants and landlords since 2009 but the increasingly complex nature of Dubai’s residential market suggest the city may need to find an alternative to maintain transparency and investment volumes into the buy to let sector,” stated Durrani.

According to Cluttons’ report, at the opposite end of the market, high end apartments at Dubai Marina (down 3 per cent) and apartments on the Palm Jumeirah (down 2.5 per cent) have recorded the most significant price decreases during the first nine months of 2015.

Morgan said: “The term luxury is of course very subjective on a global level and compared to other major world cities such as London, Dubai still offers what is perceived to be good value for money, which is aiding the performance of this segment of the market.”

In London’s prime core for instance, the average price of an apartment stands at Dh4.9 million, which equates to between Dh4,500 sq ft and Dh7,400 sq ft. The average value of residential property in Dubai stood at Dh1,441 sq ft at the end of the quarter, with the Burj Khalifa (Dh3,700 sq ft) being amongst the city’s most expensive schemes.-TradeArabia News Service