Residential property values in Dubai fell 2.2 per cent during the first quarter of the year and further declines are expected due to affordability and commodity concerns, according to Cluttons.
The real estate consultancy said villa values at the end of Q1 stood at Dhs 1,373 per square foot a 2.8 per cent decline on Q4 2015. On a year-on-year basis, prices declined 6.7 per cent with price falls in every area with the exception of Hattan Villas at the Lakes.
Values of apartments demonstrated greater resilience with marginal declines seen everywhere during the first quarter.
Cluttons said demand for affordable housing in the emirate continued due to limits on the average household income. This stood at Dhs 200,000 a year, according to the most recent government survey in 2008, and meant maximum mortgage sizes with a three to four times annual income multiple stood at Dhs 600,000 to Dhs 800,000.
At this price range all but studio or one-bedroom apartments in International City, IMPZ, Dubailand or Dubai Silicon Oasis are out of reach, the firm said. While the few that could amass a 50 per cent deposit to Dhs 900,000 or Dhs 1.2m could afford one- and two- bedroom apartments in Downtown Dubai and Dubai Marina, or three-bedroom villas in Arabian Ranches.
“As we previously highlighted, not only are general affordability constraints hampering the residential market, a liquidity crunch across the banking system is manifesting itself in tighter lending criteria,” Cluttons said.
“This is set against the backdrop of a market where many buyers are now taking a ‘wait-and-see’ approach, which has resulted in some of the weakest levels of mortgages extended in the market’s history, according to anecdotal evidence from our banking clients.”
More broadly, the company noted several instances of price reductions with vendors across the city now undercutting each other. It also highlighted discounted schemes and extended payment plans in the off plan market despite healthy activity.
In contrast, the residential rental market showed some resilience with only a 2.7 quarter-on-quarter drop in Q1 and a 3.5 per cent decline year-on-year.
Villas declined 1.8 per cent compared to the previous quarter and 2.8 per cent year-on-year, while apartment rents fell 4.1 per cent and 4.7 per cent respectively.
Cluttons said demand was relatively stable but notably down on last year due to weaker economic conditions hampering job creation. It also noted the impact of redundancies in the banking and finance sector, with a particular impact on the top end of the market.
“With redundancies seemingly gathering pace and spilling into other sectors, there is a risk that demand may weaken further as the year progresses, putting rents under pressure,” the firm said.
For this year, 7,058 new units are expected in the emirate, followed by 10,299 deliveries in 2017, 16,026 in 2018 and 9,786 in 2019.
Strong value rises are predicted after these residential handovers are absorbed into the market.
But in the short term an immediate recovery in prices is deemed unlikely due to the impact of low oil prices on market sentiment.
Cluttons predicted a further decline in villa prices of 5 per cent on average in 2016 with some submarkets falling up to 7 per cent.
Despite some resilience in apartments, the company also expects values to decline by 3 to 4 per cent this year as transaction activity slows.
Further declines of 3 to 5 per cent on average are expected in the rental market this year, reaching as high as 5 to 7 per cent at the top end of the market, the firm said.