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FEDERAL MORTGAGE CAP HELPS

Dubai residential market 'strongest in 5 years'

Dubai, May 17, 2014

The awarding of the Expo 2020 to Dubai in November capped a year of extraordinary growth in the emirate’s real estate market, with the residential market expanding rapidly, recording its strongest growth in five years, said a report.

Dubai’s GDP expanded by 4.9 per cent last year, according to the latest government estimates, underpinned in part by the exceptional turn around in the emirate’s real estate sector.

The economic buoyancy and burgeoning confidence levels have also prompted the announcement of several multi-billion Dirham real estate and infrastructure projects as the city gears up to host the World Expo, according to property expert Cluttons.

These range from additional crossings over Dubai Creek to the extension of the Dubai Metro network and the Dubai Tram system, while mega projects like Nakheel’s Deira Islands and Mohammed Bin Rashid City are also gradually moving forward.

The growth in the economy, coupled with the frenzy leading up to Dubai’s successful World Expo bid and the strong domestic demand for residential property helped to lift average values by 51 per cent during the course of 2013, stated Cluttons in its 'Dubai Spring 2014' report.

This super growth was largely linked to the anticipated positive outcome for Dubai’s Expo 2020 bid, which catalysed the record surge in house prices during the second quarter of 2013 (23 per cent). "However, with the announcement behind us, we are already seeing a return to a more moderate pace of growth, as anticipated," said the Cluttons in its report.

The implementation of the Federal Mortgage Cap, along with measures such as the doubling of property registration fee to 4 per cent and the ban on off-plan re-sales (until handover) by real estate agents by some developers, have positively influenced the market’s behaviour.

This has been reflected in the gradual slowing in the pace of price acceleration, which we view as a normalisation of the residential market, said the property expert.

"Clearly we are entering a stabilisation period, with capital value growth across Dubai’s freehold areas slowing to a more sustainable rate, while buyers adjust to the slew of new regulations," it said.

Undoubtedly this is already reducing the number of end users on the market, however it does create an opportunity for institutional and equity-rich investors to step into the market while prices stabilise and domestic housing demand ebbs to an extent, said Cluttons in its review.

We have already begun to see the return of institutional activity which will help to further diversify the city’s long term demand base. One of the largest flows of international capital into the residential market since before the recession has materialised in the form of the Dh6.9 billion ($1.88 billion) investment by Chow Tai Fook Endowment Industry Investment Development (Group), it stated.

According to Cluttons, this involved the purchase of serviced apartments, high-end residences and two five-star hotels at the Dubai Pearl scheme on Al Suffouh Road in February. In addition, the Bahrain-based Ravi Pillai Group has declared its intent to invest Dh5.5 billion in two real estate projects in Business Bay and Downtown Dubai.

"We anticipate there to be further headline investment deals as the year progresses and the residential market demonstrates the resilience of its recovery as values start to rise at a more moderate rate," he added.

While the Federal Mortgage Cap may prove beneficial to the lettings market as some households have no choice but to rent for longer, it is too early to assess what impact, if any, the supply pipeline will have on the longer term performance of the rental market, the expert said in its report.

In the near term, other factors such as affordability and the ongoing delivery of fresh supply in schemes across the city are likely to continue dampening the speed at which rents rise, it added.

Accorrding to Cluttons, despite the slowing pace of growth, the rents currently stand almost 16 per cent up on this time last year.

The sharp turnaround in rental values that began during 2012 has been driven by the rapid rebounding of the economy and the subsequent rise in the level of job creation across the emirate, it stated.

"The sheer pace of rental value growth over the course of the past 12 to 18 months has put household earnings under strain and we are clearly approaching an affordability threshold. In fact, this ceiling may have already been breached in some of the more affordable submarkets, where rents have remained unchanged for most of the first quarter, said Cluttons.

While it is unlikely that rents on average will record any negative growth this year, we may see some downward adjustment for properties where landlords start to feel the pressure of rising void periods, the real estate expert stated.

This however could be mitigated to a degree by further jobs growth, which is unlikely to cool in the near to medium term, it added.-TradeArabia News Service




Tags: Dubai | Cluttons | Mortgage | growth | residential market |

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