Dubai property growth cools after new steps
Dubai, November 19, 2013
The measures introduced recently to regulate Dubai's property market are already starting to have an impact with a cooling of the rate of growth, said a new report.
The measures have set the market towards a more sustainable pace of growth, according to Cluttons, the international real estate consultancy .
The steps initiated by the UAE Central Bank to set limits on the size of mortgage loans for housing, along with the Dubai Land Department’s recent doubling of property registration fees from 2 per cent to 4 per cent, are already impacting the volume of deals being recorded in Dubai’s residential market, the Cluttons report said.
It is still too early to assess whether the regulations will succeed in curtailing growth at levels perceived to be more sustainable levels over the long term, but the report highlights that buoyancy in Dubai’s residential market persisted during Q3. Average capital values continued to rise by 8 per cent, albeit more slowly than the record 23pc growth experienced during Q2. Despite the recent gains, on average, prices are still 26pc below the Q3 2008 market peak, although they are now 47pc above the bottom of the market, which was reached in Q2 2009. Year on year, values are 53pc up on this time last year.
Emirates Living and Dubai Marina continue to record increased levels of deal activity during Q3, with capital value growth rates between 8.5pc and just over 10pc, ahead of the average for Dubai. Jumeirah Village was the strongest performing submarket this quarter, with average villa prices rising by 18.4pc to Dh990 psf, pushing closer to the current Dubai average of Dh1,359 psf.
The report points to growing numbers of buy-to-let investors from both the UAE and abroad, plus an increase in owner-occupiers, all fuelled by affordable mortgage rates of between 4pc and 5pc, that will sustain the upward trajectory for capital value growth.
Despite this, the market still appears to be driven by cash purchases, as highlighted in a recent analysis by Cluttons in Dubai Marina, which found that the ratio of cash to mortgage buyers was 3:2. The findings indicate that this varies from one submarket to the next and a key driver, in addition to location and investor interest, is the willingness of banks to lend on projects.
Despite loan-to-value (LTV) ratios of 80:20 being widely available ahead of the December 1 implementation of the federal mortgage cap, many only cover the high profile, low risk submarkets such as Downtown Dubai and the Palm Jumeirah, which banks perceive to be secure submarkets.
Steve Morgan, head of Cluttons Middle East, said: “The vibrancy in the residential market has resulted in growing confidence in the real estate sector, but we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak. Although the long term effect remains to be seen, short term indicators show that recent regulation appears to be stemming further sharp increases in property prices. Rather than being fuelled by ‘fly-by dealers’, current demand is primarily being driven by a growing population and rising employment levels.”
The residential rental market is also experiencing a slower pace of growth according to the latest figures. During Q3 average residential rental values rose by 3pc, following on from an 8pc increase in the previous quarter. Rental value growth for villas (3.2pc) outpaced apartments (2.7pc), but the report highlights that these figures mask the high performance of budget studio apartments in locations such as Discovery Gardens and International City, which registered 9.9pc rise in average rents in Q3. Five bedroom villas in locations such as The Lakes, The Meadows and Arabian Ranches were the best performing in the villa segment, registering average rental increases of 4.8pc.
Morgan said: “A slowing in the rate of rental value growth can also be expected in the residential rental market as we appear to be nearing the threshold of relative affordability. While the economy is clearly on an upward trajectory, the pace of income growth still lags behind rental value growth, so a period of more mute growth can be expected over the next few quarters.”
With the economy rebounding, growth is being recorded across most of the Emirate’s key sectors, translating into increased occupier demand; however this is focused mainly on centrally located submarkets such as DIFC, Downtown Dubai, Business Bay, Barsha and Jumeirah Lake Towers (JLT).
On average, prime office rents (Dh200 psf) have risen by 8.1pc between Q1 and Q3. However this masks the fact that Grade A prime stock is still available for as low as Dh150 psf in some submarkets. The report points out, however, that many landlords who have recently taken possession of properties maintain unrealistic rent expectations that is stemming occupier demand along, but downward adjustments are expected as landlords lower rents to match occupier expectations.
Neighbourhood retail space is continuing to benefit from improved economic conditions, with new and existing retailers particularly drawn to affluent sub markets such as Al Wasl and Jumeirah Beach Road. Rents in these areas currently stand at between Dh200 and Dh350 psf with retail bank branches, coffee chains, clothing shops and furniture outlets proving to be the most active retailers. Developers are also catering for the local market with new community malls such as The Pointe (Palm Jumeirah), Jumeirah Beach Village (Dubai Marina) and The Ribbon (Motor City) getting ready to meet current demand.
Morgan said: “We anticipate that these new community shopping centres, along with the expansion of more established malls, such as Dragon Mart, Al Ghurair Centre, The Dubai Mall and Mall of the Emirates, will be quickly absorbed into their respective communities, with pre-lets likely for majority of the new space.” - TradeArabia News Service