Dubai property market likely to stay soft for rest of year and into 2017

Residential property prices in Dubai are expected to continue softening throughout the rest of 2016 and into 2017, according to a new analysis report.

But it should not be a development to worry about as it is part of the emirate becoming a more mature real estate market after the heady heights from eight years ago when gazumping and flipping was commonplace, says the report from international property firm Knight Frank.

It explains that overall the residential market in Dubai has maintained its stability in the first half of 2016 with prices becoming more realistic and confidence is expected to return with ongoing Government spending in the run up to Expo 2020.

The report points out that despite an annual 7% year on year fall across the mainstream market, the general REIDIN sale price index has remained relatively flat on a monthly basis with no noticeable changes in the performance of both apartments and villas.

The data for the first six months of 2016 shows that prime prices fell by 5% compared to the first half of 2015 but prices have remained largely stable with a 2% increase in the first quarter of 2016.

‘While there has been much talk in the market about a dramatic decline in residential prices, akin to that witnessed in 2009, we believe the real estate market is better situated to face any potential threats,’ said Dana Salbak Knight Frank Associate Partner.

‘Regulations, government commitment to infrastructure spending, and the realisation among developers of the need to phase out projects in line with demand to avoid an oversupply, lead us to believe the real estate market has become more mature and resilient,’ she added.

The report also points out that although data from the Dubai Land Department (DLD) reveals that the total value of transactions reached AED113 billion in the first half of 2016, a 12% decline from the same period in 2015 levels, sales volumes have gained momentum with a 23% increase over the first half of the year.

In turn, the value of prime property sales reached AED 1.1 billion in the first half of the year compared to AED 1.7 billion in 2015. However, the prime market has seen a growth in activity on a monthly basis since January 2016.

‘Particularly in this segment, the limited supply and strong demand from high net worth investors looking for long term capital appreciation, and well-crafted and good quality products, is expected to boost activity further over the second half of the year,’ Salbak explained.

She also pointed out that Dubai continues to attract interest from international buyers. According to the Dubai Land Department the first half of 2016 saw 149 nationalities invest in Dubai’s property market, with the majority Emiratis. Foreign investors were led by Saudi, Indian, British, and Pakistani nationals, who have traditionally been the top three buyers of property in Dubai.

Established areas like Palm Jumeirah and Dubai Downtown continue to be popular choices for investors and occupiers alike. But looking inland, new master developments such as Dubai Creek Harbour and Mohammed Bin Rashid City (MBR) are also proving attractive due to the planned infrastructure and supporting amenities, the report suggests, adding that their proximity to Downtown Dubai and the Central Business District along with the Dubai International Airport add to their value and appeal.

‘While it’s difficult to predict when the next growth cycle will be, we expect the residential market to level out by the end of 2016 before seeing gradual recovery in 2017. This is supported by continued government spending on infrastructure and facilities, in preparation for the Expo 2020,’ said Salbak.

‘On a segment split, we expect prime residential properties to continue to outperform the market average in the short to medium term. However, the outlook for the emirate in general and the real estate sector in particular depends on a number of global and regional fundamentals,’ she added.

‘Further volatility in oil prices, the US presidential elections in November 2016, and ongoing geopolitical tensions are likely to impact the behaviour of currencies, investor sentiment, and consequently the demand for property,’ she concluded.

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