It means that Dubai could see a broader based real estate recovery in 2013 but certain issues such as oversupply and the UAE central bank's mortgage changes could have an effect.
The changes limit mortgages taken out by foreigners at 50% of the property's value for a first home, and 40% for second and subsequent homes. Caps for UAE citizens have been set at 70% and 60%.
Further mortgage rule changes are expected by the middle of the year on top of those already announced. These are likely to include broader regulations covering the stability of the housing mortgage sector and all banks and financial institutions will have to adhere to them.
According to Craig Plumb, head of research at Jones Lang LaSalle in MENA, the recent announcement about caps on mortgage loan to value ratios shows that government authorities are concerned about market stability and want to avoid any rapid increase in real estate prices.
‘While there has been a recovery in rents and prices in the residential, retail and hotel sectors during 2012, this improvement remains focused on a relatively small number of projects. We are likely to see a broader based recovery in 2013 but this recovery will remain challenged by the current over supply and high vacancy levels,’ he explained.
‘A number of major projects have been announced in Dubai recently, but these will take some time to come to fruition. In the meantime we would urge cautious optimism. Good projects with secure funding and tenant commitments will succeed, but we must avoid the over exuberance and over supply seen before the global financial crisis,’ he added.
The firm’s latest report said Dubai's overall residential market recorded a positive year, with the villa market continuing to outperform the apartment sector in 2012. Prime projects in well established locations continued to see improved performance, but secondary locations are still suffering from rental and pricing declines as tenants relocate to new high quality projects.
The report added that Dubai's real estate investment market remained quiet over the fourth quarter of the year with no major open market commercial transaction recorded.
‘Despite the lack of transactions, investment sentiment in Dubai is improving. The optimistic outlook is reflected in Jones Lang LaSalle's latest Investment Sentiment Survey, which shows investors from the region perceive Dubai as the preferred market,’ the report points out.
The most significant new project is Mohammed Bin Rashid City to be developed jointly by Emaar and Dubai Properties. It will include the world's biggest shopping mall called Mall of the World, a Universal Studios franchise, hotel facilities and a large public park. The project was initially launched back in 2008 but has now been revised.
However, the recovery of Abu Dhabi's real estate market is a couple of years away, according to a separate report from JLL. It is unlikely to see an upturn until at least 2014.
‘Abu Dhabi remains 18 to 24 months behind Dubai and the market is not expected to experience an upturn in 2013. The foundations are however being laid for a recovery from 2014, with a number of major infrastructure projects scheduled to start later this year,’ said Alan Robertson, chief executive officer of JLL MENA.
JLL predicts that 443,000 square meter of office space will be released in 2013, up from 340,000 in 2012. In the residential sector, 16,000 new units are likely to benefit from a new policy requiring all Abu Dhabi government employees to live in the emirate.
