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Has Dubai’s Property Market Finally Lost Steam?

Has Dubai’s Property Market Finally Lost Steam?

Although this year’s Cityscape saw bigger displays and numerous new project launches, experts say the market is leveling off.

When Dubai’s property prices began soaring late last year, the now-all-too-familiar warnings from global agencies such as the International Monetary Fund (IMF) began to resurface. Bring in more regulations and the keep the price growth steady to avoid another bubble, the fund warned.

However, talking to experts at Dubai’s biggest property show, Cityscape Global, it appears that signs of overheating have now started waning.

The latest report from CBRE pegs average sales prices growth at around three per cent quarter-on-quarter in Q3, bringing the annual growth close to 23 per cent. Advisory firm JLL also suggests that the market has cooled off, with average residential sales prices in Q3 2014 up by just one per cent quarter-on-quarter, down from six per cent in Q2.

Factors behind this cooling off include tighter government regulations and an increasing mismatch between buyer and seller expectations, the JLL report said.

New regulations by the government such as doubling the transaction fee to four per cent and capping mortgages has had a significant impact on Dubai’s real estate market, agreed Steve Morgan, CEO, Middle East at Cluttons.

“Last year there was a significant increase in prices, but the regulations have had a levelling effect on the marketplace. The price growth couldn’t have continued in the same pace. With the market maturing, we will see small increases in certain areas, but they will be more in line with what you would expect in global markets,” he explained.

Speaking to reporters, Ali Rashid Lootah, chairman of Nakheel, said that the company was not witnessing any major signs of softening in prices.

“If you have a good location and your development has unique features, you can demand a premium, and prices will continue to grow,” he said.

“It’s all about location, location, location,” he stressed.

NEW LAUNCHES

In line with the company’s focus on location, Nakheel launched yet another project in its popular master development, Palm Jumeirah, during Cityscape this year. The Palm Gateway is a Dhs3 billion, three-tower waterfront leisure complex with more than 1,300 homes, a beach club, retail, dining and health and fitness facilities that will be spread across 5.5 million sq ft.

The developer also launched Jumeirah Heights Fronds, a Dhs1.2 billion residential project in Jumeirah Islands during the event.

Major billion-dollar project launches also came from several other Dubai developers at Cityscape.

Meraas Holding revealed ‘La Mer’, a mixed-use beachfront development in Jumeirah, close to the Pearl Jumeirah Island. Spread across 9.5 million sq ft of existing and reclaimed land, it will comprise four zones – the beach, a leisure and entertainment hub, North Island, and South Island. Construction is set to commence in Q4 2014, the developer said.

Deyaar unveiled a Dhs3.5 billion mixed-use development, ‘Midtown By Deyaar’ which will be spread across 5.5 million sq ft, and feature 27 buildings including two hotels, 13 residential buildings and 12 buildings clustered into four groups.

A new luxury waterfront hotel was also launched by Dubai Properties, a subsidiary of state-owned Dubai Holding, in the upcoming Culture Village district located in Dubai’s creekside. The hotel, which is due to open in early 2018, will be operated by Anantara Resorts and Spa and will comprise 270 guest rooms and a 3.8 metre promenade and Marina.

Yet another new luxury hotel was also announced by Dubai-based Damac Properties, in collaboration with Paramount Hotels & Resorts. Located on a plot off Sheikh Zayed road in the Downtown area, the ‘Paramount Hotel Dubai, Downtown’ will include 1,250 rooms and suites. Construction is already underway with the hotel set to open its doors in 2018, Damac said.

Following the three-day Cityscape, the developer announced that this year’s event was its “most successful” one to date. Damac’s recently launched AKOYA Oxygen project, a 55 million sq ft master development in Dubailand, drew many investors to its stand, it said.

The new development will feature a golf course designed by the Trump Organisation and include green open spaces, gardens and water features. The launch of the first two residential clusters at the development sold out on the first day.

Speaking to Gulf Business, Ziad El Chaar, MD of Damac said that the company decided to launch the development because of rising demand for high-end community living in Dubai.

“In our first AKOYA development, the smallest unit was a four-bedroom villa, but we found that many people were looking for a smaller unit. Hence we launched three bedroom houses for Dhs1.6 million in our new project, which has proved very popular,” he explained.

Anand Lakhiani, director at Indigo Properties – which unveiled a Dhs1.5 billion villa-project called Zen at Cityscape, agreed that investors are seeking unique community villa projects in Dubai.

OFF-PLAN FEARS?

While developers cite growing demand, the launch of so many off-plan projects has caused some to reminiscence about the heydays in Dubai before the property crash, when so-called flippers drove speculative trading and unknown fly-by-night developers announced glamorous new structures that were never built.

But Lakhiani says many things are different this time around. “The market is much better regulated which means every development that has started, or even launched, will be completed.

“Regulations don’t let you launch until you have crossed certain very strict threshold requirements and once you have passed that stage, you are at a point of no return because there is a lot of money put into it. That’s the big difference.”

Morgan from Cluttons also adds that while trading will continue, developers will be unable to sell properties “three times in a queue.”

“The new fees makes flipping less attractive.”

The government is also scrutinising the sector keenly and will only intervene if absolutely necessary, said Nick Maclean, managing director, CBRE, Middle East.

“If we continue to see off-plan sales rising, then I believe the government will step in to introduce regulations against off-plan market sales. If the market self corrects then the government probably might not do that. But they are monitoring the situation closely,” he said.

Experts also assert that Dubai is growing at a reasonable pace to absorb all the new supply that these developments will bring.

The outlook seems promising, but with Cityscape organisers already announcing plans to expand to between 35,000-40,000 sqm of exhibition space for 2015, it remains to be seen how long the balance will hold.

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