A new report by ReidIn and Global Capital Partners has said that transaction levels in the Dubai residential property market are already higher for the first 10 months of 2017 than for the whole of last year, driven by greater activity in the off-plan market.
The report published on Sunday states that on an annualised basis, the volume of deals is up by 32 percent on last year and the value of deals has increased by 27 percent, recovering from a 15 percent fall in 2016.
It said that recent pessimism cited by analysts on the Dubai residential market has focused around the increased supply pipeline, with several firms arguing that the growth in off-plan sales has been hitting the secondary market (ie. completed homes), which have witnessed declining rents and prices.
The managing director of Global Capital Partners, Sameer Lakhani, told Zawya in a phone interview that since total investment flows into Dubai's residential market were increasing, the fate of the secondary market should not matter as much - especially as it represents a lower volume of investor transactions.
The firm's report states that two years ago, transactions for completed homes and off-plan purchases were each responsible for about 50 percent of the market. However, he said that payment plans and other incentives for buying off-plan meant that these transactions now outweigh those in the secondary market by two-to-one.
"In Dubai, we know that off-plan transactions are the dominant factor. Now, there's a lot of reasons for that. And some of the criticisms that have been levelled (at off-plan selling) are valid.
"If you're going to give people too much of a post-handover payment scheme, that's an issue for concern. When people start giving a return guarantee, that's a source of a problem," Lakhani added.
However, he said that analysts looking at current indices tend to focus too much on the secondary market.
"For the most part, the commentary from the community is that there are all of these off-plans going on, the ready market is going down, it's 'getting hammered'....It's just this constant negative spin in the face of mounting evidence that volume and value are increasing, even if it's not increasing at the same rate – or anywhere close to the same rate - in the secondary market."
He argued that it "kind-of makes sense" for there to be more off-plan sales because Dubai is still rapidly urbanising.
However, Manika Dhama, a senior consultant in Dubai-based Cavendish Maxwell's strategic research department, told Zawya in an emailed statement that there was evidence that "new supply continues to exert pressure on rents, which have been declining at a faster pace than prices over the past 12 months".
White collar jobs
Dhama said that although the city's population has grown - by almost 16 percent in the two years between the last market peak in 2014 and 2016, according to Dubai Statistics Centre - much of this can be attributed to the demand for more blue collar workers, whose employers provide accommodation for them.
The white collar workforce renting apartments and villas also increased by 5 percent over the same period to reach 1.1 million, but the total proportion of white collar workers has dropped to 40 percent of the city's population last year - down from 44 percent in 2014.
"While investor demand for residential properties in Dubai continues to remain strong, as witnessed in transactions levels over the last 18 months, the sluggish growth in the white-collar worker population combined with new supply is impacting rents and contributing to high vacancy levels in some emerging communities," Dhama said.
"Over the next two years, job creation ahead of Expo 2020 is expected to attract additional labour force to the emirate, though it remains to be seen what percentage of that will be white-collar population and hence translate into housing demand."
Cavendish Maxwell said that developers have been phasing out the delivery of projects to respond to the slower market. Earlier this year, the company had said that 35,000 completions were scheduled for this year, but Lynette Abad, head of the firm's Property Monitor database, said that to date only 11,800 had completed, and that it expects just 2,000 more to complete this year.
However, 49,000 new homes - 39,000 apartments and more than 10,000 villas and townhouses - are now due to complete next year - some 16,255 of which are due in the first quarter.
According to Cavendish Maxwell, a further 43,500 are due to complete in 2019 and 25,000 in 2020 - bringing the total due within the next three years to 117,500.
© ZAWYA 2017