After hitting their low in 2010/2011, prime residential prices in Dubai mounted a remarkable recovery with 2013 seeing an average quarterly growth pace of 4%, according to the latest residential report from Knight Frank.
It also says that early signs point to prices growing at a snail’s pace in the second quarter of 2014 with a double whammy of higher transfer fees and the new mortgage caps slowing the market with the latter especially effective in dampening buyer activity.
In the first quarter of the year transaction volumes were 10% lower compared to the preceding three months and were nearly 28% below a year earlier. But the lower level of transactional activity doesn’t come as a surprise, according to Victoria Garrett, Knight Frank associate residential partner.
She pointed out that an analysis of Dubai’s prime residential property market shows that 25% to 35% of buyers rely on mortgage finance for purchase. Indeed, the latest available data from the United Arab Emirate Central Bank shows that, after bouncing in and out of negative territory for two years, loans, advances, overdrafts and real estate mortgage lending grew in annual terms throughout 2013.
‘This trend of rising lending to the property sector is likely to continue. Data from the Central Bank’s quarter one 2014 Credit Sentiment Survey showed that financial institutions expected to loosen their credit standards for both residential owner occupiers and investors in the subsequent three months,’ said Garrett.
She also pointed out that despite the significant price growth seen over the past couple of years, it is difficult to argue that Dubai’s prime residential property is expensive by international standards.
One million US dollars buys approximately 146 square meters of luxury living space in the emirate, around six times more than in London, seven times more than in Hong Kong and 10 times more than in Monaco. Notably, other global cities such as Moscow, Mumbai and Istanbul are also more expensive than Dubai.
Figures released by the Dubai Land Department (DLD) show that in the first quarter of 2014 some 133 separate nationalities invested across the emirate’s real estate market. Indians remained the top foreign real estate investors spending close to AED5.9 billion, while the British and Pakistanis invested another AED 3.1 billion and AED 2.4 billion, respectively.
Overall though, the Emiratis were the biggest investors, accounting for AED 7 billion, around 20% of total investment in the first three months of 2014. Buyers from the remaining GCC countries invested a further AED 3 billion into Dubai real estate.
Garrett pointed out that Knight Frank’s web traffic data shows that, so far this year, more than 40% of those viewing prime UAE property online were from the federation itself. ‘However, it is worth remembering that a significant proportion of those viewings are likely to have been by expatriates residing in the UAE,’ said Garrett.
Another 22% of those clicking through to Knight Frank’s UAE website were doing so from the UK, while the Indians, Saudis, Russians and Pakistanis each accounted for less than 4% of total visits in the five months to May.
The report says that in terms of supply, very little is due to be delivered in the way of prime residential property in 2014/2015. However since the end of last year, a number of new projects have been launched in Downtown, including Opera Grand, Boulevard Point and BLVD Crescent, all of which are estimated to be completed in 2016.2017. Overall, a significant proportion of the current prime residential construction pipeline is expected to be delivered in 2016 or beyond.
Looking ahead, strong economic conditions, a well performing labour market and prospects of loosening credit standards for buyers suggests that demand for prime residential property will see an uptick in the short term, the report says.
‘That, combined with the fact that very little is due to be completed in the prime segment over the next 18 months, points to luxury residential prices resuming their upward path in the second half of this year, before seeing a single digit increase in 2015,’ it concludes.
