Ask the Agent - What are the major hurdles for prospective buyers?

Ask the Agent - What are the major hurdles for prospective buyers?John Stevens

- Residential sales and rental prices continued to drop in Q3 2014, albeit at a slower rate than the previous two quarters. What does this mean for buyers and sellers as we look ahead to the rest of the year 2015?

For the first time since 2012, we have seen both residential rental rates and sales prices decline as a result of a natural adjustment to ongoing new supply entering the market. This has translated into market stabilization rather than being simply defined as a real estate sector slowdown. In terms of sales, we believe that this will benefit the market going forward as further softening of sales prices driven by additional new supply will assist in unlocking demand from the middle income segments of the population. Villa and apartment sales prices showed a nominal decline in Q3 against Q2, although year-on-year growth remained positive overall with a 31% and 17% increase in sales prices for apartments and villas.

- Which areas of the city are performing well in terms of sales prices, and conversely, which areas are seeing a decline in interest and why?

In terms of apartment sales, the top performers in Q3 2014 versus the same period in 2013 were Jumeirah Lakes Towers (JLT) and Downtown Dubai, registering an uptick of 37% and 35%, respectively.

In contrast, areas like Jumeirah Village are down 3% quarter-on-quarter but up 32% year-on-year. Jumeirah Village is very much still an attractive investment opportunity as the surrounding infrastructure continues to be developed.

The Al Furjan development recorded a per square foot sales rate of up to Dh1,150 in the last quarter, a 4% quarter-on-quarter drop. But again, if we look at year-on-year growth, Al Furjan is up 38%, marking it out as another long-term prospect.

At the upper end of the residential scale, Palm Jumeirah saw zero movement in Q3 against Q2 figures but with its location and lifestyle positioning, will continue to attract investors.

- What are the major hurdles for prospective buyers looking to get onto the Dubai property ladder?

The impact of the mortgage cap legislation and higher transaction fees are making it more expensive for prospective buyers to get onto the Dubai property ladder. The mortgage cap is set at 75% for expatriates and 80% for UAE nationals, and will continue to restrict demand in the months to come.

This obviously means a higher down payment requirement on the part of prospective purchasers. Add to that the 4% Dubai Land Department (DLD) transfer fee, and the challenge for new buyers eager to enter the market is getting their hands on the cash to start the ball rolling.

Therefore, a sizeable percentage of buyers are sitting on the fence for now, as they wait for a further softening of sales prices as additional new supply is released into the market.

- What are your expectations for 2015 in terms of Dubai's property market performance?

Around 30,000 homes will come online within the next two years, giving Dubai residents a breather when it comes to choice and, hopefully, a return to relative affordability.

Our research shows that this is the number of units needed to match supply with demand, which equates to 24,000 apartments and anywhere between 6,000 and 9,000 villas. These units are forecast to be ready for rental at the end of 2016, and while this may feel like an interminable wait for many frustrated tenants, it will also provide the much-needed stock in the run-up to Expo 2020.

Our data also shows that the stabilization of both rental rates and sales prices is ongoing, but this doesn't mean that prospective tenants will be able to bag a bargain in their preferred location. Rent increases will continue for specific projects and specific products in line with demand and are contingent on the type of ownership structure.

- Question of the Week: For owners looking for rental income opportunities, what are the current hot spots and market-challenged locations?

Looking at the different offerings, Discovery Gardens and International City registered a 7% drop following previous year-on-year record growth levels of 23% and 40%, respectively. Both communities could see further rental increases as per the latest RERA rental index. This could prompt further relocations to the northern emirates, continuing the flight to affordability trend seen in the first half of the year.

On the flip side, upscale communities like Downtown Dubai have remained relatively stable, with Palm Jumeirah recording 3% quarter-on-quarter growth due to restricted supply and ever-present demand. It's not such a positive outlook for the construction and congestion-besieged Dubai Marina, which saw a 2% decline in the last quarter as frustrated tenants make the move to more accessible locations.

Looking at rental rate movement, JLT is once again on the buy-to-rent radar showing quarter-on-quarter stability and a 42% year-on-year increase.

Villas are not faring quite as well with The Springs down by 8% and Arabian Ranches and Mirdif both down by 5% since Q2 2014, partly attributable to more affordable supply in other communities like Jumeirah Village and Dubailand.

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Source: John Stevens, Special to Freehold

The writer is Managing Director - Asteco

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