In the final three months of last year signs began to emerge that residential price growth in Dubai may be easing to more sustainable levels, according to the latest prime residential review report from international property firm Knight Frank.
It reveals that both prime apartment and villa prices grew by 15% year on year in the fourth quarter of 2013 but this was notably slower compared to the preceding four quarters, when the annual growth rate averaged 21%.
However, the deceleration in price gains didn’t come as a surprise due to a number of cooling measures that were introduced in the final half of last year, including for example, the doubling in the transfer fee to 4% and new mortgage caps.
However, the report points out that there are other factors on the horizon that will boost the market such as the Bureau of International Expositions (BIE) awarding Dubai the World Expo 2020.
As a result a number of developers have announced large residential mega projects, but Knight Frank points out that many are in the middle range end of the market rather than prime. Nevertheless, new units worth AED 10 million or over are expected to account for almost 10% of existing stock in 2014, but nearly all of these will be villas located on one development. The firm estimates that this figure will fall to 1.6% in 2015, before rising to 4.6% in 2016.
‘Going forward, we think that prices could rise by 10 to 15% this year, with the differential between prime apartment and villa prices closing as the former outperforms,’ said Victoria Garrett, associate director of residential.
‘After all, the supply of apartments is expected to be by and large constrained this year. Moreover, average prime apartment prices are still about a third below their previous peak, suggesting that they have greater scope to play catch up,’ she added.
Khawar Khan, research manager in Dubai, pointed out that average prime apartment prices are still almost a third below where they were during the 2008 peak, suggesting they still have scope to rise.
‘After all, that’s exactly what prime villa prices have done over the past 18 months or so, albeit the peak to trough fall here was smaller. What’s more, hardly any new high end apartments are due to be delivered over the next 12 to 18 months as the majority of new prime supply will be made up of villas, further supporting the case that prices in the former segment will play catch up,’ he explained.
‘The prime residential market should also benefit from Dubai’s growing population of high net worth individuals attracted by the emirate’s favourable tax regime, strong lifestyle characteristics and a well performing economy,’ he added.
