With the tapering of the house price surge, a bottoming out in Dubai property market is likely to happen as prices are set to decline between three per cent and five per cent by the end of 2016, according to international real estate consultancy Cluttons.
Values for both apartments and villas dipped marginally during third quarter, marking the fifth consecutive quarter of price falls. House price declines in the region of three per cent to five per cent are expected over the next 12 months, 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, Cluttons' Dubai 2015/16 Winter Residential Property Market Outlook said.
"We expect 7,400 units to complete in 2016, 10,300 in 2017 and a further 13,600 in 2018, with the 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, CEO of Cluttons Middle East.
Last week, Mohammed Al Shaibani, head of Investment Corporation of Dubai, said Dubai was facing some "oversupply that will take some time to be absorbed."
According to another forecast, around 65,000 housing units will be completed by the end of 2018, compared with 45,000 finished in 2008 alone. Some developers may also be delaying the delivery of new projects until the market improves.
JLL recently said average apartment prices in Dubai fell by 11 per cent over the past year and seven per cent for villas and the broker predicted that average housing prices in Dubai would continue to fall over the next year.
However most analysts believe that Dubai's real estate developers are better prepared this time than when the 2008 crash came thanks to stricter lending conditions, a clampdown on speculators and greater dependence on rental income.
The vast majority of residential submarkets have seen little or no change in values this year. This is partly attributed to the steady appeal of apartments to the buy-to-let investment community and reflected in by the total number of apartment transactions during the first nine months of 2015 being 6.6 per cent higher than the same period in 2014, said the report
"We've 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," said Morgan.
Since the introduction of the 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 underserved segment of the market, said Faisal Durrani, Head of Research at Cluttons. "The authorities need to formalise the definition of affordable housing, in terms of those who could 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."
According to analysis carried out by Cluttons on the UAE Ministry of Economy's 2008 Household Income Survey, average annual expat incomes across the UAE currently stand at around Dh199,000. Average residential rents in Dubai's freehold areas at the end of third quarter stood at Dh181,000 per annum, highlighting the disparity between incomes and the cost of housing.
Average mortgage multipliers in the region are around three to four times average income.
"In the UAE this is approximately Dh600,000 to Dh800,000, which would typically buy a studio or one bedroom apartment in peripheral submarkets such as International City, IMPZ, Dubailand or Dubai Silicon Oasis, leaving many people little option but to continue renting," said Durrani.
In London's prime core for instance, the average price of an apartment stands at Dh4.9 million, which equates to between Dh4,500 psf and Dh7,400 psf. The average value of residential property in Dubai stood at Dh1,441 psf at the end of third quarter, with the Burj Khalifa (Dh3,700 psf) being among the city's most expensive schemes.
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