A change in course in Dubai real estate market

A change in course in Dubai real estate marketImage Credit: Supplied

Some Dubai brokers have been seeing half the usual number of property transactions in recent months, as a few inhibitors are driving buyers away from the market. Experts say the drop in oil prices, tight mortgage lending policy and speculation about a bubble are among the factors that are making buyers think twice.

''The market is slow at the moment and one of the main reasons is that buyers have had enough of overpriced properties and they have stopped buying as a result,'' says Mario Volpi, Managing Director of Ocean View Real Estate. ''Additionally, the increase in transfer fee and caps on mortgage have put off buyers.

''Over the past two to three months, we have seen about 50 per cent less deals concluded than in previous times.''

Craig Plumb, Head of Research at JLL Middle East and North Africa, says sales prices and rents have remained largely unchanged in the past six months, although he notes a market slowdown will ultimately make Dubai more competitive.

''One of the clearest indications of a market slowdown is the decline in sales activity last year,'' says Plumb. ''According to data from the Dubai Land Department, the total number of property sales went down 30 per cent last year compared with the previous year. The total value of transactions also fell by 15 per cent. Following a period of excessive price growth [average property prices increased 56 per cent in two years by the end of June] the residential market in Dubai has now slowed down significantly.

''The mortgage cap and an increase in transfer fee are some reasons [the market is down].''

Let's rent

Volpi says most investors in the emirate are likely to wait and watch for another six months. ''The drop in oil prices has caused investors who in the past were major players of Dubai's realty market to shy away. I believe there will be a return to normalcy sometime after the third quarter.''

As transactions drop, buyers are now driving a hard bargain with sellers.

There is no dearth of people in Dubai. ''The majority of them, however, are choosing to rent than buy property,'' says Volpi. ''There could be many reasons for this, including financial and the fact that they are on a temporary work contract here. [This is why] you don't see too many takers for property, despite prices dropping.''

The UAE Central Bank's mortgage cap regulations have also had an effect. ''The mortgage cap has restricted property growth in a large way, particularly for the mid range where the cap stands at 65-70 per cent for expatriates,'' says Warren Philliskirk, Director of Mortgage International.

''The buyer has to come up with 30 per cent cash, which not all end users would have. The new regulations were intended to keep such buyers at bay and has done so successfully. But it is time for the regulations to change according to market conditions. As a mortgage brokerage firm, we rarely see investors using finance. Mortgage takers are essentially end users looking to get out of the rent trap.''

The mortgage cap has been both a success and a failure, says Volpi. ''The cap was introduced to cool down an overheating market and reduce off-plan flipping,'' he says. ''While that has worked, the cap should have never included first-time buyers or those who could demonstrate their genuineness to buy property to live in. I believe the cap should remain, but relaxed a bit for first time buyers and end users.''

Plumb does not agree entirely, as according to JLL the mortgage cap has had a limited impact on sentiment in the market. ''Only 30 per cent of all residential sales are through mortgage,'' he says.

A bubble that will burst?

Experts say talk of a bubble has kept many buyers on the sidelines waiting for prices to slump. ''That is not going to happen, but people are being told there is a bubble and that it is going to burst,'' says Susan Dinor, Managing Director of Dinor Real Estate Consultants. ''Unfortunately, many unsophisticated and greedy real estate agents are taking advantage of this and convincing sellers to drop their prices.''

In almost 13 years as a real estate consultant in Dubai, Dinor believes ''the only unnatural thing that happened was the enormous drop in prices in 2008-09'', which was fuelled by greedy agents and ''special interest groups''. Dinor says that the swift rise in prices over the past few years has adjusted values back to their correct levels, although she asserts that ''by world standards Dubai properties are not expensive at all''.

Dinor believes steps need to be taken to encourage more tenants to buy. ''Financing should be raised to 90 per cent with banks having internal guidelines to ensure they are lending the right amount to the right people,'' she says. ''I have never seen so many foreigners [before] who consider Dubai their home.''

Manipulative squatters

However, she warns some could take advantage of gaps in the law. ''The application of rental [regulations] is creating manipulative squatters and discouraging investors. [For example], while the 12-month notice to tenants is a good thing, there are many instances of tenants who continue to stay in a property beyond the notice period and play with the system to get what they want.

''Protection for limited income tenants in relevant price-sensitive areas is very important, however, applying the same protection to someone who was lucky enough to obtain a luxury lifestyle on the Palm or similar area during the recession at the price of [a property in] International City is outrageous,'' she adds.

Experts, however, believe Dubai remains very attractive for investors. ''The Dubai realty market will continue to provide strong returns to those taking a long-term view, although prospects for capital or rental growth over the next 12 months are limited,'' says Plumb.

Volpi says despite the slow market, there is high demand for property in areas such as Downtown Dubai, Dubai Marina and the Palm Jumeirah. ''Business Bay is another area that people search for property [to buy], perhaps because of the number of cheaper options. Areas such as Jumeirah Village Circle, Dubai Sports City and Dubai Motor City are other popular destinations.

Find out the latest trends in the real estate market in Dubai

Source: Anjana Kumar, Special to Property Weekly


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