Dubai residential property prices 'under pressure'
DUBAI, February 10, 2018
Dubai’s residential property market shows few signs of bouncing back quickly from a now three-year downturn. Having stabilised in 2016, prices saw renewed declines last year as housing supply far outpaced demand, said a leading property firm Asteco.
The prices of apartments and villas fell by 7.8 per cent year-on-year (y/y) and 5.6 per cent y/y respectively in the fourth quarter of 2017, the fastest drop for several quarters. Prices are down 16-19 per cent from their peaks of over three years ago, stated Asteco in its report.
These trends are confirmed by other data sources. Reidin, another real estate property tracker, shows villa and apartment prices down 1.9 per cent y/y and 3.5 y/y respectively in Q4.
Latest data on Phidar Advisory’s Dubai 9/5 House Price Index also points to softness in Dubai’s residential real estate market.
Alongside lower prices, rents have also been falling. According to Asteco, rents were down 11.1 per cent y/y for apartments and 9.6 per cent y/y for villas in Q4, with accelerated declines from earlier in the year.
Similar to sales prices, rents are down 19-20 per cent from their previous peaks. This may even understate market pressures, with some of the adjustment coming from non-price factors such as better payment terms or rent-free periods. With rents falling faster than sales prices, yields on property investment have become more compressed.
Dubai’s property market has been on a rollercoaster ride for more than a decade. Residential prices fell by around half in the years following the 2008-09 financial crisis, but rebounded from 2013, helped by the return of confidence linked to the swift rise in oil prices back above $100 per barrel.
Indeed, the market was likely driven by speculative buyers hoping to cash in on Dubai’s economic recovery. The emirate’s award as host of the Expo 2020 event in 4Q13 also saw a spike in the number of buyers entering the real estate market. This pushed apartment prices up by a staggering 60 per cent y/y that quarter, with villa prices up 35 per cent y/y.
To prevent a repeat of the boom-bust cycle in property prices that had plagued Dubai’s economy before, the authorities tightened regulations.
They doubled the land registration fee to four per cent and introduced tighter loan-to-value ratios to help mitigate risks to banks’ balance sheets, rein in speculative activity and gear the market more towards end-buyers. This had an almost immediate impact, said the report.
Growth in apartment prices slowed from 41 per cent y/y in 1H14 to 19 per cent y/y in 2H14, while villa prices slowed from 20 per cent y/y to 8 per cent y/y during the same period, it stated.
Growth in supply has been a key factor in recent price weakness – and a legacy of the long lead times in bringing large real estate projects to market.
According to Jones Lang LaSalle (JLL), a property consultant, growth in housing supply slowed slightly from 3.9 per cent y/y in 2016 to 2.9 per cent y/y in 2017. With population growth possibly in the range of one to two per cent y/y, occupancy rates continued to remain low, adding further downward pressure on prices.
Meanwhile, demand remained lacklustre as the impact of more stringent loan-to-value rules was compounded by the effects of higher interest rates, higher fuel costs, and modest wage and job growth, all of which reduced consumer purchasing power.
Transaction levels in 2017 were low compared to earlier years, averaging Dh3.5 billion per month, down 6.5 per cent from 2016. But they were helped by a shift towards the more affordable housing segment, mainly as a result of a rise in the incidence of cash-strapped and risk averse buyers.
JLL pointed out that the property market downturn has not been exclusive to Dubai, or to the residential sector.
Prices of apartments and villas in Abu Dhabi fell by a steeper eight per cent y/y and 7.9 per cent y/y respectively, on average, in the fourth quarter of 2017 with the market appearing to suffer from the same issue of oversupply.
Prices and rents in the commercial property sector are also falling. Meanwhile, other GCC countries are witnessing their own property market corrections.
One key factor in recent market weakness – rising supply – is expected to grow over coming quarters: JLL expect supply growth to pick up to 9 per cent this year.
The near completion of a number of residential developments, including New Dubai Gate in the Jumeirah Lake Towers district, The Pad in Business Bay, Eagle Heights in Sports City and Serenia Residences on Palm Jumeirah, will likely add 17,000 new apartments to the market in early 2018, stated the report.
Although project launches are expected to ease off in the 2H18, the projected supply increase in 2019, at eight per cent, is nearly as large, it added.-TradeArabia News Service
