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“In the base case scenario, assuming an average GDP (gross domestic product) growth of 3.4 per cent and residential demand CAGR (compounded annual growth rate) of 4.6 per cent, if all of the announced projects are completed, the market could achieve a 7 per cent oversupply in five years,” the report states.
“If stalled projects restart, the projected oversupply increases. Even a more bullish scenario of 4.1 per cent average GDP growth rate cannot absorb all potential supply expansion, including under construction, launched, announced, and stalled projects.”
The ‘disequilibrium’ will be particularly severe in the top end of the market. This will have consequences for Dubai’s typical high networth investor base and their acquisitions of multiple high-end properties.
“There were a lot of investors who three years ago saw that Dubai’s high-end property space had limited fresh stock available and went in for new launches,” said Samir Munshi, Managing Director of Silver Heights Real Estate. “We are still seeing a lot of that happening — and it has reached a point where some developers are already finding it difficult to meet their sales targets.
“The same problem — of excess supply — had happened in commercial property, which is why Dubai’s developers are not coming out with any significant new additions. Some such adjustments are necessary in the premium residential space too.”
The pace of new launches picked up significantly in the first five months, led in the main by private developers. The majority were targeted at the upper-mid to high-end of the value chain.
The Phidar report argues the point that “housing supply with current estimated rent within the range Dh100,000 to Dh160,000 per annum could be oversupplied by up to 40 per cent in five years, primarily driven by supply pipeline trends.”
And where there is perceived oversupply, investors are hardly likely to get the return on investments. There lies the risk for both such buyers as well as for the wider Dubai realty market.
“However, overbuilding in the mid- to high-income segment will likely increase competition and lead to supply reordering,” said Jesse Downs, Managing Director of Phidar.
Investors seem to have a clue to what could be in store. In the first five months, single-family home sales were down nearly 25 per cent from a year ago period. Apartment transactions were down 1.5 per cent, according to initial estimates from Dubai Land Department.
The one category that is still far removed from any immediate oversupply situation is in the affordable segment, anything in the Dh1,000 a square foot and below range. There have been some early movers into this space, but the releases to date are only the tip of what is needed in the market.
“There is an opportunity to reposition upcoming products to meet the city’s anticipated housing needs,” said Downs. “If current announcements convert into launches, the probability for instability by 2020 will increase significantly.”
Source: Manoj Nair, Associate Editor, gulfnews.com