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BUBBLE FEARS EASE

Dubai residential sector 'shows signs of slowdown'

Dubai, July 20, 2014

The rise of Dubai's red-hot residential real estate market is slowing as government steps to curb speculative buying have an impact and higher prices start to affect demand, consultants JLL said in a report on Sunday.

Second-quarter trends in the market suggest the risks of the Dubai property market overheating and then crashing, as it did in 2008-2009, are easing, Craig Plumb, JLL's head of research for the Middle East and North Africa, told Reuters.

"It's good news that the market is slowing down," Plumb said, adding that when the market eventually reached the falling phase of its cycle, the pull-back was unlikely to be as violent as it was five years ago, when it triggered a corporate debt crisis in the emirate.

For now, the residential market is still climbing rapidly - average sale prices jumped 36 percent from a year earlier in the second quarter, compared to 33 percent in the first. Rents gained 24 percent, after 23 percent in the previous quarter.

But on a quarter-on-quarter basis, rises are slowing. Sales prices grew 6 percent in the second quarter, down from 10 percent in the previous quarter, JLL calculated. The increase in rents dropped to 3 percent from 7 percent.

Seeking to avoid another boom-bust cycle, authorities took a series of steps last year to cool the market. The United Arab Emirates central bank imposed caps on mortgage loans, and Dubai doubled its transaction fee on property deals.

Plumb said these steps were having an impact and in addition, market forces were at work as, with prices in many areas back near their pre-crash levels, some buyers started to question the affordability of prices.

While apartment prices have continued to rise, prices of existing villas in particular have started to lose steam, with anecdotal evidence of a drop in asking prices that looks set to continue in coming months, he added.

The cooling of the market can be seen in falling sales volumes for all residential sectors, with Dubai government data showing villa sales shrank almost 50 percent from a year earlier in May, JLL said.

Plumb said that while the residential market as a whole still had further growth ahead of it, and was unlikely to turn down for at least six months, it had entered a period of slowing rent rises that would precede a phase of falling rents.

Other parts of Dubai's property market - hotels, retail space and offices - are further back in the cycle and remain in phases of accelerating rental growth, the JLL report said.

High vacancy rates and plans for future supply continue to constrain the office market, even though rents have been rising modestly, the report found. Dubai remains one of the world's strongest-performing hotel markets, with average occupancy rates around 85 percent in the year to May.
 
 
The Dubai office market operates as a number of different submarkets, based on location, tenure, license structure and quality. While overall market vacancies remain high, pockets of shortages have resulted in major occupiers seeking to have new space built for their requirements rather than occupy sub-optimal space in existing buildings.
 
Meanwhile, the rents in best performing regional malls have increased by as much as 12 per cent during the second quarter, with limited additions to stock and continued interest from retailers, said the report.
 
The increases, however, been more modest in smaller centres and secondary malls, but the retail sector has benefitted from higher spending from both tourists and local residents, it said.
 
The Dubai hotel market continues to grow, despite the compeletion of more than 1,500 additional rooms during the period, recording the highest Rev-Par levels since 2008, according to JLL.
 
The average occupancies have remained relatively stable at around 85 per cent, with room rates increasing three per cent, making Dubai one of the strongest performing hotel markets globally, it said.
 
The report provided the real estate investment and advisory firm’s perspective on the latest trends in the office, residential, retail and hotel sectors in the Dubai market.
 
Plumb said: “While the retail and hotel sectors continue to experience growth, recovery in the office sector remains patchy with the large level of supply and high vacancy rates placing pressure on overall rental values. The major news about the proposed Mall of the World in the Umm Sequeim area reflects confidence for both the retail and hotel sectors.” - Reuters, TradeArabia News Service



Tags: Dubai | estate | Report | real | slow | down | JLL |

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