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Real estate prices in Dubai have taken a dip this quarter, with both the rental and sales markets feeling the pinch, according to a recent Asteco report. There was an average drop in apartment and villa rents of 2 per cent and 3 per cent respectively compared to the second quarter, as sales also declined 1 per cent and 4 per cent respectively. But do these figures paint a misleading picture? What has caused the dip and what does it mean for the market?
A quick look seems to suggest that Dubai real estate stakeholders should be a little worried: Discovery Gardens has seen a 7 per cent fall in rental prices compared to the second quarter; the prestigious Dubai Marina has seen a dip of 2 per cent; Al Furjan saw sales prices for its luxury villas fall by 4 per cent; and prices of The Springs villas dropped by an alarming 8 per cent.
These figures, however, do not cover the year-on-year situation, which is far more positive. International City, for example, saw a 7 per cent fall in rental prices this quarter, but compared to last year it is still up a huge 40 per cent. Discovery Gardens is a healthy 23 per cent up on last year. For sales, Jumeirah Lakes Towers has enjoyed a 37 per cent increase on the same quarter last year, with Downtown Dubai trailing at 35 per cent.
In fact, a recent Asteco report shows that the overall rental market in Dubai is up an impressive 31 per cent on last year, with the sales market 17 per cent higher than the same period a year ago. Furthermore, some neighbourhoods and developments have actually posted quarter-on-quarter increases, such as the Palm Jumeirah where rental prices were up 3 per cent and sales prices increased significantly by 55 per cent.
The supply-and-demand dynamic is one reason cited by Asteco for the fall. With many new developments having been completed recently, buyers now have more choices, which of course impacts the cost of property.
“The correction is more of a natural supply-demand adjustment cycle, rather than a market depression as witnessed in 2008,” confirms John Stevens, Managing Director of Asteco.
It also appears that certain areas have specific issues at the moment. The 2 per cent fall of prices in Dubai Marina has been blamed for the most part on tenants moving elsewhere, while extensive construction work and the attendant traffic issues hound the community. The implication is that once work is completed, people will want to return and the prices will go up again.
Mortgage caps and higher transaction fees could also be to blame. As these new regulations make purchasing property a bit harder, demand has waned a little and prices have come down for most buyers to be able to afford them. Or so another theory goes. There are many possible factors at play and some aren’t immediately obvious.
Another reason for the drop in prices this quarter is Ramadan and the summer holiday. During Ramadan, people tend to refrain from doing many business deals. In fact, there were around 50 per cent fewer business transactions and deals during the holy month. After Ramadan came summer, when somewhere in the region of 80 per cent of people took vacations.
So it ends up being literally two whole months where you have a very large number of people completely out of the loop. And this is bound to put a dampener on the number of transactions.
A short-term dip in activity, for more left-field reasons, has impacted prices. It is a sign of a maturing market, that such cycles start coming into play.
Whatever the causes, this quarter’s price drop has resulted in the market opening up, particularly to the middle-
income group that has long struggled to gain a real estate toehold in Dubai.
There has been a lot of interest in our current projects, such as the Mirdif Tulip, from end users rather than investors. And these end users have almost always been in that middle bracket. It is really encouraging for the future and it creates greater dynamism in the market.
For the buyers themselves, the question now is whether to wait a little longer to see if prices continue to fall, or pounce once they rise again. Could the imminent arrival of new developments keep things going in the same direction, with prices softening further, or will the completion of yet more new, stunning developments trigger a general increase (such as what was seen in Dubai Marina)?
Power to the buyer
It is tricky to judge and the rental market is not too dissimilar. What this current ability of buyers to wait and see does appear to show is that after several years of favouring the seller, the market has become one that buyers and tenants have more control of. Rather than being rushed into purchasing a property because the seller has all the power, buyers can pick a moment that is right for them.
So it appears that despite the initial shock brought about by the figures in the Asteco report, there are reasons to be optimistic.
At Cityscape Global in September, for example, thousands of people from around the world came here, in part because the market is so exciting. And during the realty expo, it was announced that not just two or three, but 27 new developments have been given the go-ahead. What better sign of a healthy, positive market could you ask for?
Source: Iseeb Rehman, Special to Property Weekly
CEO of real estate services firm Sherwoods. Born and raised in London, Rehman studied legal surveying at the University of West London. Rehman established Sherwoods in London in the mid-1980s and then relocated its headquarters to Dubai in 1988.
Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided.