Dubai property prices to drop on new supply, global market conditions

Property prices and rentals in Dubai are likely to see a drop over the next 12 months, as new supply surfaces and external factors like lower oil prices and a drop in the number of foreign investors weigh on investor sentiment, analysts said.

The price declines are due to several external factors, such as the strength of the dollar, low oil prices, Europe’s economic situation, and the depreciation of the Russian ruble. All have led to a drop in the number of investors from Europe.

“Over the next 12-months, we are likely to see a further drop in the range of 10 to 15 percent in the sales market and perhaps slightly less— up to 10 percent— in the rental market,” Matthew Green, head of research and consultancy at CBRE, told Argaam Plus.

Fewer speculators

Other reasons— more directly related to the industry—include the large amounts of off-plan launches that increase the options available for purchasers and set off competition between sellers. The doubling of transfer fees by the Dubai Land Department has also lead to fewer speculators in the market for short-term gains.

“Sale prices are falling faster than rents because the previously high prices have led to reduced transaction activity, especially in the secondary market,” said Julia Knibbs, research and consultancy manager at the Dubai-based real estate services company, Asteco. “As such, owners have had to reduce rates to entice potential buyers to complete transactions.”

However, one major reason for the drop in property prices is the market’s pending over-supply, with close to 20,000 new units potentially being delivered this year.

“Dubai has been through a period of robust growth over the past two years, and there’s a definite view that we have reached the top of the cycle and that the market is now correcting itself," CBRE’s Green said.

According to a Jones Lang LaSalle report, a further 16,000 units are due for completion over the remainder of the year. However, with the market expected to face further declines, some projects may be delayed into 2016 and beyond.

Temporary gap

The gap between prices and rents is temporary and will reduce over the next few months, as more supply is ready for occupation.

“Ultimately the deflationary period should not last much longer than an additional 12 months as the fundamentals of the Dubai market— particularly in the non-oil sector— appear quite good,” Green pointed out.

Indeed, the lower sales prices are already beginning to unlock demand by attracting new buyers.

“We have noted strong demand especially in the affordable segment in properties, such as IMPZ and Dubai Land as rates were conducive to deals concluding, and with the properties now being ready for occupation, investors had less risk in terms of future returns,” Knibbs added.

" Argaam Reports "