Slow Q1 Growth In Dubai’s Property Prices, But Rents Continue To Boom

Implementation of the federal mortgage cap seems to be most effective in cooling prices, real estate consultancy Cluttons says.



Dubai’s residential property market growth has returned to a moderate pace after prices surged in 2013, real estate consultancy Cluttons said in a new report.

The Expo 2020 win and the ensuing economic growth have led to a strong demand for residential property in the emirate, lifting average values by 51 per cent in 2013, the report said.

However, a slew of regulations -introduced by the government- that were aimed at cooling the rapidly rising prices have began to take effect, it added.

“The implementation of the federal mortgage cap, along with measures such as the doubling of the property registration fee to four per cent, and the ban on off-plan re-sales until handover by some developers, have positively influenced the market’s behaviour,” said Steven Morgan, chief executive Cluttons Middle East.

“This has been reflected in the gradual slow down in price acceleration, which we view as a normalisation of the residential market.”

Residential property prices rose just three per cent quarter-to-quarter in Q1 2014 after rising almost six per cent in Q4 2013, Cluttons noted.

Among other regulations, the federal mortgage cap seems to be most effective in cooling prices.

“The increased size of deposits means that property options available to mortgaged buyers is likely to be restricted to the lower end of the property spectrum and has already had an impact on transaction volumes,” said Morgan.

“We expect the transition from rented property to owner occupation to take longer as deposits are amassed, which is translating into a slowdown in the number of deals being recorded.”

However, the International Monetary Fund (IMF) recently said in a presentation that more stringent measures were required to curb speculative activity in Dubai’s property market.

The fund upheld examples of measures adopted by Hong Kong and Singapore as ideal ways to regulate the market.

“In the case of Hong Kong, they imposed a 15 per cent fee on transactions of real estate that were turned around (re-sold) within six months,” Masood Ahmed, director of the IMF’s Middle East and Central Asia department was quoted as saying in Reuters.

“In the case of Singapore, for certain types of real estate that were turned around within a year the fee was 30 per cent.”

Rents Boom

Despite the slowdown in Dubai’s house prices, rents are growing due to a rapid rebound in the economy and increased levels of job creation.

“It’s too early to assess what impact, if any, the supply pipeline will have on the longer term performance of the rental market. In the near term, factors such as affordability and the ongoing delivery of new schemes will dampen the speed at which rents rise,” said Morgan.

But the report noted that the surge in rental rates has been pressuring an average household’s purse strings.

“The sheer pace of rental value growth over the course of the past 12 to 18 months has put household earnings under strain and we are clearly approaching an affordability threshold,” Cluttons said.

“In fact, this ceiling may have already been breached in some 
of the more affordable submarkets, where rents have remained unchanged for most of the first quarter.

“While it is unlikely
 that rents on average will record any negative growth this year, we may see some downward adjustment for properties where landlords start to feel the pressure of rising void periods. This however could be mitigated to a degree by further jobs growth, which is unlikely to cool in the near to medium term,” the real estate consultancy said.