Has Dubai’s property market finally stabilised?
Though reports indicate a stagnant market for Q1 2018, is Dubai property finally showing stability, or are further declines on the horizon?
There has been much talk about Dubai property and the presumed slowing down of the market over the past few years.
Reports have continuously shown declines in rents and sales, with prices dropping by 5%-10% in 2017 alone, according to an S&P Global report earlier this year.
But some experts have recently noticed a change in these trends for the first quarter of 2018 as prices have stagnated, marking the first stable quarter for rents in the emirate in over two years.
Joanne Phillips, general manager of the mortgage division at Holborn Assets, a global financial services group, believes an oversupply of units, lower rents, and a dip in values have contributed to a major reshaping of the property landscape.
“Old predictions of ‘continuous growth’ have been replaced with more grounded ideas of what is achievable as the sector continues to mature beyond the ‘bubble’ that enveloped it prior to the 2008 financial crisis,” she said.
Phillips notes that in 2017, the market witnessed a number of significant trends, including a 12% drop in rental prices, a decrease in 4% across all quality brands, and a 20% decline in ‘luxury’ areas such as Dubai Marina and Downtown Dubai.
But she explains that last year was widely recognised as a ‘testing’ time for the market. One reason for that could be attributed to the dip in prices over the last 18 months, which has made the market more accessible.
More importantly, she said, the continuing lack of taxes, specifically related to capital gains, property appreciation, salaries and rental yields, means there is potential for strong returns on investment.
“While this could be interpreted as a warning, property in Dubai still presents investors with many exciting opportunities,” Phillips added.
But some experts still expect continuing declines in the next couple of months despite the more positive outlook of the first quarter, which helped improve the annual rate of change to -3.1%, from -7.7% in 2017.
Cluttons’ Dubai Spring 2018 Property Market Outlook reports that while the rental market has shown signs of stabilising, the growing volume of off-plan investment stock, destined to be made available for rent after handover, is likely to pose challenges in the future.
The ability of the rental market to absorb a high volume of new stock will likely be tested over the next three years, it adds.
Murray Strang, head of Cluttons Dubai, said: “We expect newly completed rental properties to command the attention of tenants, while older and more secondary property will register rent falls.
“This flight to quality phenomenon will likely result in the creation of a very distinctive two-tiered market. In the short-term, we expect rents to slip by up to 5-7% over the remainder of 2018.”
Property consultancy Chestertons MENA echoes these sentiments in its latest report, and even indicates that the market saw further decline as oppose to stagnation in the first quarter.
According to the latest Observer: Dubai Q1 2018 report, overall sales prices for apartments and villas softened by 5% quarter-on-quarter, denoting the highest quarterly drop in sales prices for apartments since 2014.
Rental rates for apartments and villas in the city fell by 2%, with the Greens, a standout performer in recent years, falling by 4%. The villa market, notably Palm Jumeirah also fell by 4%.
The consultancy reports that due to the addition of new stock, tough macroeconomic conditions, and moderate population growth, further pressure on property sales prices and rental rates in Dubai are likely.
“As a result of falling sales prices, many end users took advantage of the increased affordability of completed units, as evidenced by the 10% increase in recorded transactions from the previous quarter,” said Ivana Gazivoda Vucinic, head of Consulting and Valuations and Advisory Operations, Chestertons MENA.
“This was to the detriment of off-plan transactions, which although still dominate the market, saw volumes decline by 19%.”
Cluttons also expects values to slip by up to 5% or 7% this year and adds that it is quite likely this trend will persist well into 2019, catalysed by the buoyancy of the supply pipeline, before there is the potential for stability in 2020, once the supply pipeline starts to diminish.
The city’s property developers have similarly acknowledged the difficult market, including Nshama’s CEO, Fred Durie, who told Construction Week earlier this month that “demand has definitely weakened” over the past few years.
“[Demand is] not strong, it has definitely weakened, but I think at the right price point and with the right product, you could still do ok, and we are doing ok,” he said.
“But it has been weakening over the last couple of years, and it is the same for other developers [in the city]. It’s the same for everyone.”
Phillips said that it is also important to note that predictions more than 120,000 new properties will flood the market ahead of EXPO 2020 may be
Phillips said that it is also important to note that predictions that the market is set to be flooded with more than 120,000 new properties ahead of Expo 2020 should be calmed by the likelihood that not all will be finished on schedule.
“This means any disturbance to the sector is unlikely to be felt for some time,” she concluded.