November 25, 2015
Muscat: Housing price growth in Dubai appears to be slowing, with a bottoming out in the market likely to happen at the tail-end of 2016, according to international real-estate consultancy firm Cluttons.
According to Cluttons' Dubai 2015-2016 Winter Residential Property Market Outlook, values for both apartments (-0.8 per cent) and villas (-0.5 per cent) dipped marginally during the third quarter, marking the fifth consecutive quarter of price drops.
Housing prices declines of 3 per cent to 5 per cent are expected over the next one year, impacted by faltering global growth and supply levels creeping upwards. But at the same time, infrastructure investments planned around the looming Expo 2020 will boost the rate of job creation and the rate of new households created.
"We expect 7,400 units to be completed in 2016, 10,300 in 2017 and a further 13,600 in 2018, with new schemes launched during the past quarter, helping to even out the balance between villas and apartments. Over the next three years, 48 per cent of the units delivered will be villas," said Steven Morgan, chief executive officer (CEO) of Cluttons Middle East.
The report also highlighted that away from the top end of the market, the vast majority of residential sub-markets have seen little or no change in values this year. This is partly attributed to the steady appeal of apartments to in buy-to-let investment community and reflected in the total number of apartment transactions during the first nine months of 2015 being 6.6 per cent higher, compared with the same period in 2014.
"We have seen the popularity of off-plan property sales persist, partly fuelled by the fact that off-plan residential property prices are often 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," added CEO Morgan.
Since the introduction of federal mortgage caps almost two years ago, the issue of affordability and accessibility to Dubai's housing market has dominated headlines.
"Several developers have brought schemes to the market that they present as being 'affordable,' but true affordable housing remains a vastly under-served segment of the market. The authorities need to formalise the definition of affordable housing, in terms of those who can 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," noted Faisal Durrani, head of Research at Cluttons.
According to analysis carried out by Cluttons on United Arab Emirates' (UAE's) Ministry of Economy's 2008 Household Income Survey, average annual expat incomes across the UAE currently stand at around AED 199,000. Average residential rents in Dubai's freehold areas at the end of third quarter stood at AED 181,000 per annum, highlighting the disparity between incomes and the cost of housing.
According to the Cluttons' report, average mortgage multipliers in the region are around three to four times the average income.
"In the UAE, this is approximately AED600,000 to AED800,000, which would typically buy a studio or a one bedroom apartment in peripheral sub-markets, such as International City, IMPZ, Dubailand or Dubai Silicon Oasis, leaving many people little option, but to continue renting. The rent to own a model has been successful in the past and has the added advantage of helping developers build an income generating portfolio that could potentially be traded as investment grade stock. Such tenanted asset sales are common in the city's commercial market, but we are yet to see this in the Dubai's residential market," added Durrani.
Luxury segment
According to Cluttons' report, at the opposite end of the market, high-end apartments in the Dubai Marina (-3 per cent) and apartments in the Palm Jumeirah (-2.5 per cent) have recorded the most significant price decreases during the first nine months of 2015.
"The term luxury is of course very subjective on a global level and compared with other major world cities, such as London, Dubai still offers what is perceived to be good value for money, which is aiding the performance of this segment of the market," noted Morgan.
© Times of Oman 2015
