Dubai’s housing market ‘oversupplied’ despite drop in prices – UBS

The Dubai residential market is expected to bottom out soon, states study



Dubai’s housing market remains “oversupplied” despite the drop in prices over the last few years, a new report by investment firm UBS Global Wealth Management has found.

The market in Dubai is now “fairly priced” found UBS’ bubble index 2019, which analysed residential property prices in 24 major cities around the world.

“The property market in Dubai boomed between 2010 and 2014, supported by strong economic growth driven by high oil prices. To curb the boom, the authorities introduced higher transaction fees and tighter mortgage standards. Consequently, real prices have fallen by almost 35 per cent since mid-2014, paral­leling the weakness in oil prices,” the report stated.

“Affordability has improved even though incomes have de­clined amid slower economic growth. Despite posting the strongest population growth among all cities in the study, the market re­mains oversupplied. Easier visa requirements and next year’s Expo should support the market,” it added.

Ali Janoudi, head of Central and Eastern Europe, the Middle East and Africa at UBS added: “We expect prices to find a bottom soon but we would still encourage all investors to be diligent in their real estate research.”

Globally, the risk of a housing bubble was found to be the greatest in Munich, followed by Toronto, Hong Kong and Amsterdam.

Frankfurt, Vancouver and Paris were also found to be in “bubble risk territory”, while major imbalances were found in Zurich, London, San Francisco, Tokyo and Stockholm, the report said.

Valuations were stretched in Los Angeles, Sydney, Geneva, New York, Madrid and Moscow.

Property markets in Singapore, Boston and Milan seem “fairly valued” while Chicago remains undervalued, it added.

Mark Haefele, CIO at UBS said: “On a global level, economic uncertainty is outweighing the effect of falling interest rates on urban housing demand. However, in parts of the Eurozone, low rates have still helped to push real estate valuations into bubble risk territory.”

On average, in cities analysed, inflation-adjusted price increases have practically come to a standstill in the last four quarters, the report found.

Residential property only appreciated markedly in Moscow, Boston and Eurozone cities, with Frankfurt the only city to see double-digit price increases. By contrast, there were corrections of over 5 per cent over the previous year in Sydney, Vancouver and Dubai.

Claudio Saputelli, head of Real Estate at UBS said: “The worldwide collapse in interest rates will not come to the housing markets’ rescue. Mortgage interest rates in many cities aren’t the major challenge for house buyers anymore.

“Many households simply lack the funds required to meet the banks’ financing criteria, which we believe poses one of the biggest risks to property values in urban centres.”

Overall, the absence of economic viability has led to a deterioration in many cities’ attractiveness, the report said.

Even though the underlying factors favouring city properties, including urbanisation, the digital revolution and artificial supply constraints still hold good, real price appreciation can no longer be taken for granted, it added.

“Investors should remain cautious when considering housing markets in bubble risk territory. Regulatory measures to curb further appreciation have already triggered market corrections in some of the most overheated cities,” said Matthias Holzhey, lead author of the study.