Dubai’s property market will face a “challenging” year in 2016 but is expected to see an upturn in 2017, a new report by consultancy KPMG has predicted.
Average sales prices for apartments and villas fell between 11 to 13 per cent between 2014 and 2015 while rents dropped 3-4 per cent, according to data from JLL and REIDIN.
The number of residential units sold also declined by around 30 per cent by the end of November 2015 compared to the same period in 2014, statistics from Dubai Land Department showed.
“While certain areas have been more impacted than others in terms of declining prices for residential real estate, the overall magnitude of the decline has been tempered,” KPMG’sBuilding Confidence report said.
The report attributed this to improved regulations within Dubai’s real estate sector. Following the property market crash in 2009, several new measures have been implemented such as the establishment of the Real Estate Regulatory Agency and the Al Etihad Credit Bureau and the introduction of mortgage caps.
Also, affordable housing areas have incurred lower declines and, in some cases, even maintained value or rental yield, the report added.
“While oil prices remain well below the long term average, which is clearly having an effect on market confidence, Dubai’s improved regulatory environment, broader investor profile, and increased maturity are all indicators that its real estate market should eventually self-correct,” said partner and head of Building, Construction and Real Estate with KPMG Lower Gulf Sidharth Mehta.
The report indicated five key trends that will drive the Dubai residential real estate market.
1. Liquidity is likely to become increasingly important as markets continue to tighten. Several large local banks are now reluctant to lend which in turn may impact the ability of buyers to invest in the real estate market. Hence, there will be pressure on availability of capital to buy properties in the primary and secondary market.
2. Oil prices seem unlikely to recover in the short term. “Although Dubai’s economy is comparatively highly diversified, falling oil prices still impact the ability of some buyers to invest in the local residential market. The government is expected to cut budgets to avoid deficits which in turn means slower infrastructure growth,” the report stated.
3. Premium for quality can be expected in the market as the supply and demand metrics are not currently balanced. Certain areas and segments are significantly more attractive than others, KPMG stressed.
4. Affordable housing will remain in focus. Increasing amounts of housing will come onto the market at prices that both compete with the rental market but also appeal to a much wider demographic.
5. Expo 2020 is likely to have both a direct and indirect impact on the real estate market – and is increasingly on the horizon for both the private and the public sector.
“When preparation for Expo 2020 picks up, we expect to see a significant amount of job creation and an increase in demand for residential real estate,” said Mehta.
“Although 2016 could be challenging in the short term, with effective regulations in place and the infrastructure investment that is committed as part of Expo 2020, we should see an upturn in the real estate industry in 2017.”