Dubai property values fall at start of 2016

Dubai property prices fell at the start of 2016, with prices down 2.2 per cent in the first quarter.

The emirate’s house prices have declined over the last two years, as the market enters a period of moderation following rapid growth. Global headwinds, though, such as the EU outlook, China’s economy and falling oil prices, have also weighed upon sentiment and momentum.

The emirate is bracing itself for a recovery in the future, as it prepares to host the World Expo 2020, something that is expected to boost the economy, employment and demand for property. That boost, though, has not materialised yet.

Cluttons reports that prices fell by an average of 3.1 per cent in 2015, before dropping an additional 2.2 per cent in the first quarter of 2016.

“This marks the strongest quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline,” say the consultancy’s latest report.

Faisal Durrani, head of research at Cluttons comments: “We’ve been carefully monitoring the declining residential values over the past two years, but the persistent headwinds to local and global economic growth are continuing to erode overall demand and capital values are still softening, albeit at a slightly quicker rate.

“In the villa market for example, values at the end of Q1 2016 stood at an average of close to AED 1,375 psf, which represents a near 3 per cent decline since the end of 2015. The latest change means villa prices are nearly 7 per cent down on this time last year. With the exception of Hattan Villas at The Lakes, every villa submarket that we track registered price falls in the first quarter. Looking back at 2015, the market registered a 5.6 per cent fall in prices in line with our expectation of a drop between 5 per cent and 7 per cent, which Cluttons predicted back in 2014. During 2016, it is our view that a further decline of around 5 per cent is likely on average, with some villa submarkets likely to see price falls of up to 7 per cent.”

Apartment values demonstrated “greater resilience” during the first quarter, notes Cluttons, with only marginal decreases. Values also stayed flat year-on-year in International City, Jumeirah Lake Towers, Discovery Gardens and the International Media Production Free Zone, which Cluttons says “demonstrates the emphasis being placed by buyers on areas they perceive to offer the best value for money”.

“With the market still evidently working its way through a challenging period, with global economic conditions and affordability challenges, which are in part linked to the Federal Mortgage Caps, an immediate recovery in values appears unlikely, particularly as uncertainty around commodity prices, which have a direct impact on liquidity levels in the UAE’s banking system, remains in flux,” comments Richard Paul, head of residential valuations.

Nonetheless, the market remains highly attractive to investors from overseas, with GCC investment, in particular, staying strong. According to Cluttons’ 2016 Middle East Private Capital Survey, Dubai emerged as the Middle East and North Africa’s number one property investment destination for 14 per cent of GCC’s High Net Worth Individuals.

Dubai property prices could fall up to 5pc

30th November 2015

Dubai property prices are predicted to fall by up to 5 per cent in the coming year, as the market softens.

A new report from Cluttons reveals that apartment prices fell 0.8 per cent in the third quarter of 2015, with villa prices also dipping 0.5 per cent. This is the fifth quarter in a row of price drops, with Cluttons forecasting a continued drop of between 3 per cent and 5 per cent during the next 12 months.

The figures arrive after a year in which the market has softened, partly due to wider global economic trends and a natural moderation in values. Indeed, it is almost two years since the emirate introduced a Federal Mortgage Cap to deter speculative investors and cool down rapid price increases. Since then, “affordability” has become a subject of much debate.

Faisal Durrani, Head of Research, comments: “Several developers brought schemes to the market that they present as being “affordable” but true affordability 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.”

Rising supply levels are also contributing to the general weakening of values, with 7,400 units scheduled for completion during 2016, 10,300 in 2017 and a further 13,600 in 2018.

Nonetheless, buy-to-let sales have continued, with apartment transactions up 6.6 per cent in the first nine months of 2015 compared to the same period in 2014.

Steven Morgan, Middle East CEO, says: “We’ve seen the popularity of off-plan property sales persist, partly fuelled by the fact they are often priced 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.”

“Generally, Dubai rents stabilised with no growth recorded during Q3,” adds Cluttons. “However, in the city’s freehold areas average rents fell 3.2 per cent year-on-year with the biggest declines (6 per cent between January and September) recorded for low-end three-bedroom villas in the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa.””