Dubai seeing sustainable property market growth, says latest analysis
Recent regulatory measures introduced to help sustain and regulate Dubai’s property market are already starting to take effect, with a recent cooling in the rate of growth, positioning the market towards a more sustainable pace of growth.
According to the latest research by international real estate consultancy Cluttons, the steps announced by the United Arab Emirates' Central Bank in October to set limits on the size of mortgage loans for housing, along with the Dubai Land Department’s recent doubling of property registration fees from 2% to 4%, are already impacting the volume of deals being recorded in Dubai’s residential market.
The firm said it is still too early to assess whether the regulations will succeed in curtailing growth at levels perceived to be more sustainable levels over the long term, but the report highlights that buoyancy in Dubai’s residential market persisted during the third quarter of 2013.
Average capital values continued to rise by 8%, albeit more slowly than the record 23% growth experienced during the second quarter of the year. Despite the recent gains, on average, prices are still 26% below the market peak in the third quarter of 2008, although they are now 47% above the bottom of the market, which was reached in the second quarter of 2009. Year on year, values are 53% up on this time last year.
The research shows that Emirates Living and Dubai Marina continued to record increased levels of deal activity during the third quarter, with capital value growth rates between 8.5% and just over 10%, ahead of the average for Dubai.
Jumeirah Village was the strongest performing submarket this quarter, with average villa prices rising by 18.4% to AED 990 per square foot, pushing closer to the current Dubai average of AED 1,359 per square foot.
The report points to growing numbers of buy to let investors from both the UAE and abroad, plus an increase in owner occupiers, all fuelled by affordable mortgage rates of between 4% and 5%, that will sustain the upward trajectory for capital value growth.
Despite this, the market still appears to be driven by cash purchases, as highlighted in a recent analysis by Cluttons in Dubai Marina, which found that the ratio of cash to mortgage buyers was 3:2.
The findings indicate that this varies from one submarket to the next and a key driver, in addition to location and investor interest, is the willingness of banks to lend on projects. Despite loan to value (LTV) ratios of 80:20 being widely available ahead of the December implementation of the federal mortgage cap, many only cover the high profile, low risk submarkets such as Downtown Dubai and the Palm Jumeirah, which banks perceive to be secure submarkets.
‘The vibrancy in the residential market has resulted in growing confidence in the real estate sector, but we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak,’ said Steve Morgan, head of Cluttons Middle East.
‘Although the long term effect remains to be seen, short term indicators show that recent regulation appears to be stemming further sharp increases in property prices. Rather than being fuelled by fly by dealers, current demand is primarily being driven by a growing population and rising employment levels,’ he added.
The residential rental market is also experiencing a slower pace of growth according to the latest figures. During the third quarter average residential rental values rose by 3%, following on from an 8% increase in the previous quarter. Rental value growth for villas at 3.2% outpaced apartments at 2.7%, but the report highlights that these figures mask the high performance of budget studio apartments in locations such as Discovery Gardens and International City, which registered 9.9% rise in average rents in the third quarter.
Five bedroom villas in locations such as The Lakes, The Meadows and Arabian Ranches were the best performing in the villa segment, registering average rental increases of 4.8%.
‘A slowing in the rate of rental vale growth can also be expected in the residential rental market as we appear to be nearing the threshold of relative affordability. While the economy is clearly on an upward trajectory, the pace of income growth still lags behind rental value growth, so a period of more mute growth can be expected over the next few quarters,’ Morgan explained.