The firm’s Outlook Spring 2014 report shows that the first quarter of 2014 saw a return to more moderate levels of growth after rapid levels were seen in the latter part of 2013.
Demand rose by 51% last year which helped fuel massive infrastructure investment supported by the announcement that Dubai will host the World Expo 2020.
Cluttons also says that the impact of the Federal Mortgage Cap has helped to restrict growth, as property registration fees have increased. Overall the firm says the market is stabilising and notes that rents are currently 16% higher now than they were a year ago.
Property transactions also remain high, with 1,200 apartment transactions occurring in March, which has increased steadily following a dip during the New Year period.
It has been a year of extraordinary growth in Dubai’s real estate market, with the residential market expanding rapidly, recording its strongest growth in five years, according to the report.
‘The economic buoyancy and burgeoning confidence levels have also prompted the announcement of several multi billion Dirham real estate and infrastructure projects as the city gears up to host the World Expo. These range from additional crossings over Dubai Creek to the extension of the Dubai Metro network and the Dubai tram system, while mega projects like Nakheel’s Deira Islands and Mohammed Bin Rashid City are also gradually moving forward,’ it says.
The growth in the economy, coupled with the frenzy leading up to Dubai’s successful World Expo bid and the strong domestic demand for residential property helped to lift average values by 51% during the course of 2013. This super growth was largely linked to the anticipated positive outcome for Dubai’s Expo 2020 bid, which catalysed the record surge in house prices of 23% in the second quarter of 2013,’ it explains. However, after the announcement there has been a return to a more moderate pace of growth, as anticipated.
The report points out that the implementation of the Federal Mortgage Cap, along with measures such as the doubling of property registration fee to 4% and the ban on off-plan re-sales until handover by real estate agents by some developers, have positively influenced the market’s behaviour. ‘This has been reflected in the gradual slowing in the pace of price acceleration, which we view as a normalisation of the residential market,’ it says.
‘While the stellar performance of the residential market last year was the strongest since our record keeping began in 2006, the quick succession of measures aimed at regulating the strength of the market has undoubtedly helped to rein in growth. The decision by the UAE Central Bank to push ahead with the implementation of the Federal Mortgage Cap in December 2013 appears to have had the most significant impact on the rate of price acceleration,’ it explains.
‘The increased size of deposits means that the range of property options available to mortgaged buyers is likely to be restricted to the lower end of the property spectrum. The ability of mortgaged buyers to step on to the housing ladder will undoubtedly be curbed in the near to medium term while deposits are amassed. This in turn will impact on the volume of transactions being recorded,’ the report says.
‘We are already seeing the first signs of this emerge with data from Reidin showing a 9% fall in the number of deals registered during the first quarter, when compared to the same period last year. The magnitude of the decline is more pronounced for villa transactions, which are down 46% on the first quarter of 2013. With the sharp rise in the size of down payments required, it comes as little surprise to see a notable slowdown in the number of villa transactions due to their relative value as households adjust to the new mortgage regulations,’ it adds.
The firm predicts capital value growth rates for Dubai’s villa submarkets to cool further in the near term, which may offer some respite to households aspiring to purchase. Values are however not expected to record any declines.
‘While the Federal Mortgage Cap may prove beneficial to the lettings market as some households have no choice but to rent for longer, it is 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, other factors such as affordability and the ongoing delivery of fresh supply in schemes across the city are likely to continue dampening the speed at which rents rise,’ the report says.
It also points out that despite the slowing pace of growth, rents currently stand almost 16% up on this time last year. The sharp turn around in rental values that began during 2012 has been driven by the rapid rebounding of the economy and the subsequent rise in the level of job creation across the emirate.
‘That said, 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. 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,’ it adds.
‘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 report concludes.
