Second-quarter trends in the market suggest the risks of the Dubai property market overheating and then crashing as it did in 2008-2009 are easing, Craig Plumb, JLL’s head of research for the Middle East and North Africa, says.
Reuters/Dubai
The rise of Dubai’s red-hot residential real estate market is slowing as government steps to curb speculative buying have an impact and higher prices start to affect demand, consultants JLL said in a report yesterday.
Second-quarter trends in the market suggest the risks of the Dubai property market overheating and then crashing, as it did in 2008-2009, are easing, Craig Plumb, JLL’s head of research for the Middle East and North Africa, told Reuters.
“It’s good news that the market is slowing down,” Plumb said, adding that when the market eventually reached the falling phase of its cycle, the pull-back was unlikely to be as violent as it was five years ago, when it triggered a corporate debt crisis in the emirate.
For now, the residential market is still climbing rapidly; average sale prices jumped 36% from a year earlier in the second quarter, compared to 33% in the first. Rents gained 24%, after 23% in the previous quarter.
But on a quarter-on-quarter basis, rises are slowing. Sales prices grew 6% in the second quarter, down from 10% in the previous quarter, JLL calculated. The increase in rents dropped to 3% from 7%.
Seeking to avoid another boom-bust cycle, authorities took a series of steps last year to cool the market. The United Arab Emirates central bank imposed caps on mortgage loans, and Dubai doubled its transaction fee on property deals.
Plumb said these steps were having an impact and in addition, market forces were at work as, with prices in many areas back near their pre-crash levels, some buyers started to question the affordability of prices.
While apartment prices have continued to rise, prices of existing villas in particular have started to lose steam, with anecdotal evidence of a drop in asking prices that looks set to continue in coming months, he added.
The cooling of the market can be seen in falling sales volumes for all residential sectors, with Dubai government data showing villa sales shrank almost 50% from a year earlier in May, JLL said.
Plumb said that while the residential market as a whole still had further growth ahead of it, and was unlikely to turn down for at least six months, it had entered a period of slowing rent rises that would precede a phase of falling rents.
Other parts of Dubai’s property market — hotels, retail space and offices — are further back in the cycle and remain in phases of accelerating rental growth, the JLL report said.
High vacancy rates and plans for future supply continue to constrain the office market, even though rents have been rising modestly, the report found. Dubai remains one of the world’s strongest-performing hotel markets, with average occupancy rates around 85% in the year to May.
