‘Regulatory measures successfully cooling Dubai’s property market’
Prices still 26 per cent below the Q3 2008 market peak, according to report by Cluttons.
November 20, 2013 12:20 by kippreport
Recent measures introduced to help regulate and sustain Dubai’s property market are already starting to make an impact, with a recent cooling in the rate of growth, according to the latest research by real estate consultancy, Cluttons.
The report reveals that the Dubai Land Department’s recent decision to double the property registration fees, from two per cent to four per cent, along with the UAE Central Bank’s move to formally implement mortgage caps to restrict the amount of cash homebuyers can borrow are already impacting the volume of deals being recorded in Dubai’s residential market.
According to the research, buoyancy in Dubai’s residential market persisted during Q3, with average property values rising by eight per cent. However, this growth is significantly slower than the record 23 per cent growth experienced during Q2.
Prices are 47 per cent above the bottom of the market, which was reached in Q2 2009, but are still 26 per cent below the market peak in Q3 2008. Values were up by 53 per cent during this time last year.
Dubai Marina and Emirates Living continue to record increased levels of deal activities in Q3, with capital value growth rates between 8.5 per cent and just more than ten per cent, ahead of the average for Dubai. Jumeirah Village was the strongest performing submarket this quarter, with average villa prices rising by 18.4 per cent to AED990 per square foot, pushing closer to the current Dubai average of AED1,359 per square foot.
The market still appears to be driven by cash purchases, as highlighted in a recent analysis by Cluttons in Dubai Marina, which found that the ratio of cash to mortgage buyers was 3:2. The findings indicate that this varies from one submarket to the next and a key driver, in addition to location and investor interest, is the willingness of banks to lend on projects.
Despite loan-to-value (LTV) ratios of 80:20 being widely available ahead of the December 1 implementation of the federal mortgage cap, many only cover the high-profile, low-risk submarkets, such as Downtown Dubai and the Palm Jumeirah, which banks perceive to be secure submarkets.
Steve Morgan, head of Cluttons Middle East, says that the vibrancy in the residential market has resulted in growing confidence in the real estate sector, but concerns of the market overheating are still “overly negative”, considering that prices are still below the market peak.
“Although the long-term effect remains to be seen, short-term indicators show that recent regulation appears to be stemming further sharp increases in property prices. Rather than being fuelled by ‘fly-by dealers’, current demand is primarily being driven by a growing population and rising employment levels,” he says.
The residential rental market is also experiencing a slower pace of growth. Average residential rental values rose by three per cent in Q3, following on from an eight per cent increase in the previous quarter. Rental value growth for villas (3.2 per cent) outpaced apartments (2.7 per cent), but the report highlights that these figures mask the high performance of budget studio apartments in locations, such as Discovery Gardens and International City, which registered 9.9 per cent rise in average rents in Q3. Five-bedroom villas in locations, such as The Lakes, The Meadows and Arabian Ranches, were the best performing in the villa segment, registering average rental increases by 4.8 per cent.
Morgan adds: “A slowing in the rate of rental value growth can also be expected in the residential rental market, as we appear to be nearing the threshold of relative affordability. While the economy is clearly on an upward trajectory, the pace of income growth still lags behind rental value growth, so a period of more mute growth can be expected over the next few quarters.”