Dubai – Mubasher: International real estate consultancy, Cluttons, expected the rate of decline in residential real estate values to slow by 2017 before reaching a new base towards the end of 2017, with average values down 7.4% during the past twelve months.
The Cluttons’ Dubai Winter 2016/2017 Property Market Outlook report showed a 2.6% fall in values during the third quarter of2016, 26.7% below the last market high in Q3-08.
Cluttons said that key triggers to slow the decline are likely to continue emerging in the form of infrastructure projects linked to the World Expo in 2020 and other mega projects.
“Although our view of 2017 indicates positive signs to reverse the market’s fortunes, we are closely monitoring the level of residential supply coming to the market,” Murray Strang, head of Cluttons Dubai said.
“With 34,000 units announced this year, it’s 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,” Strang added.
Cluttons reports that despite some submarkets heading towards bottoming out, transaction volumes are still weak and reflect the general nervousness around commitments to purchase, while the wider issue of affordability remains a stubborn thorn in the market’s side. Quarterly transaction volumes slipped by 21% during Q3-16, led by a 22% fall in apartment deal volumes, which are down 26% when compared to Q3-15. The average price of a transacted villa has also shrank by 28.1% since the start of the year to stand at AED 3.9 million.
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% following a contraction of 2.5% in Q2-16, and taking the annualised rate of change to -7.8%. However, this figure conceals the villa market’s varied performance during the third quarter, as average prices contracted mainly due to the weak performance of the luxury segment of the market”.
“This is down to affordability issues that persist, along with a slowing in the rate of creation of senior level executive position. These two factors combined with a weak, but notable nervousness to commit to more expensive purchases is continuing to drive down villa values across the board. Over the last three years for instance, villa priced have fallen by close to 10%,” he added.
In the rental market, Cluttons report shows that after a sharp 4.4% decline in average rents across the city’s freehold areas in Q2-16, which was the strongest decrease recorded in five years, the rate of fall moderated to -1.5% in Q3-16. The latest change leaves average rents 8% down on this time last year, the report stated.
Durrani expected residential values and rents to end the year 10% down on this time last year, with any bottoming out unlikely to materialise until next autumn at the earliest, noting that the change in US leadership may well bring some surprises as well, but this is something we are monitoring closely.
