Dubai real estate oversupply presents opportunities for buyers in 2017
Cluttons joins other real estate analysts forecasting either a flat market or further slowdown in 2017. (Shutterstock/Laborant)
Real estate prices are widely expected to bounce back in Dubai by the last quarter of 2017 after a persistent fall since 2014 but most property pundits say the supply of 41,000 new units over the next 14 months could pose a real challenge to that long-awaited recovery.
Residential prices, which dropped 7.4 per cent on an annual basis at the end of the third quarter of 2016, are poised to dip another five per cent during the first nine months of 2017, will start stabilising in the last three months of next year, driven by government spending on projects related to Dubai's hosting of the World Expo in 2020, property consultancy Cluttons said.
Dubizzle, a leading property platform that released its first property report in collaboration with JLL, said the greatest threats to the anticipated recovery in 2017 would be a further slowdown in the Dubai economy or a major improvement in the materialisation rate, which could lead to oversupply.
"With over 11,000 units currently scheduled for delivery in the final quarter of 2016 and more than 30,000 units under construction for planned delivery in 2017, there is definitely the potential for oversupply if all these projects progress on schedule," said the co-authored report.
With 1,600 units estimated to be completed in Dubai South by 2020, more residential projects are expected to be announced in 2017, as preparation for Expo 2020 gains momentum.
In addition, UK investment in Dubai real estate fell from nine per cent in the first half of 2015 to seven per cent in the same period this year. The vote to leave the European Union has caused a sharp fall in the value of the British pound and hence lowered UK outward investment into Dubai, where prices are comparatively higher.
Dubai property prices that have been falling since 2014 are almost 27 per cent lower than their peak in the third quarter of 2008 while sales fell almost 30 per cent by value in the first seven months of the year, according to data from the Dubai Land Department, as a slump in oil prices led to an economic slowdown in Gulf countries.
Murray Strang, head of Cluttons Dubai, said although 2017 indicates positive signs to reverse the market's fortunes, the level of residential supply coming to the market has to be factored. "With 34,000 units announced this year, it is clear that project announcements are continuing at an unrestrained pace, despite what could be perceived to be challenging trading conditions."
"If supply continues to increase in the next 12 to 18 months, as the global economy remains unstable, it is likely to cause the current stability and projected bottoming out of the real estate market to unravel, with further price falls likely to follow suit. Demand and supply are almost in-sync currently, but this delicate balance can quickly be upset by a supply surge," said Strang.
According to JLL's data, residential supply will increase by four per cent per annum from 2017 to 2019 (compared to an average of three per cent per annum in previous years) with not all announced projects being delivered.
Dubizzle said the modest improvement in performance in 2017 is predicated on several factors: increased investor confidence as they recognise that the market is close to its cyclical trough; improvements to the regulatory environment and increased transparency in the market; the gradual recovery of oil prices; continued government investment in hospitality, aviation, healthcare and other growth sectors; and increased employment and construction activity in the lead-up to Expo 2020.
Cluttons joins other real estate analysts forecasting either a flat market or further slowdown in 2017. Jesse Downs, managing director at consultant Phidar Advisory, predicts a 10 per cent drop after a seven per cent slide this year.
"Government spending on projects related to Expo 2020 will help create jobs and stimulate demand, but the impact of that will not start to be felt for another six to nine months," Faisal Durrani, head of research at Cluttons said.
"The villa market has continued to soften during the third quarter with values receding by 2.6 per cent following a contraction of 2.5 per cent in second quarter, and taking the annualised rate of change to -7.8 per cent. In the meantime, stubborn sellers at the top end of the market who had been holding out over the past 12 months are now facing reality," said Durrani.
By Isaac John
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