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Last year property prices in Dubai continued their recovery after the nadir of 2010-11, albeit at a slower annual growth rate.
Cooling measures by the UAE Central Bank, such as the reduction of the loan-to value ceiling on mortgages for foreigners and nationals and doubling the transfer fee to 4 per cent, led to a reduction in transactional activity.
In the prime segment transaction volumes were 14 per cent lower year-on-year in the third quarter. This applied downward pressure on prices, which fell by 0.2 per cent quarter-on-quarter for the first time since 2011.
There has been a reduction in non-GCC demand for prime housing stock, which is priced at Dh10 million and above. That's not to say that foreign nationals aren't still purchasing properties in Dubai; it's just that many are instead opting for apartments and villas that are priced in the mid-range bracket. Prices in this segment saw an annual increase of around 12.5 per cent in the third quarter.
While residential prices have broadly fallen quarter on-quarter across both the mainstream and prime housing segments, certain pockets such as Jumeirah Village, Dubai Sports City and Dubai Silicon Oasis have been relatively insulated — partly owing to the fact that prices have risen off a relatively low base. Areas such as these are perceived by investors as offering more potential for medium-term price growth.
Dubai is coping extremely well with the difficulties prevalent in the global economy. Its economic strength is largely due to the diversity of income streams, being less reliant now on the hydrocarbon sector compared to 20 years ago.
Diversifying away from oil-based revenue into trade and logistics, retail, financial services, construction and real estate, and tourism has enabled the emirate to meet the challenges.
The non-oil economy continues to perform robustly, with healthy demand for space underpinning the level of rents landlords are able to command for industrial and office floor space.
Milestones such as the relaxation of sanctions on Iran are predicted to have positive implications for trade flows within the GCC and are expected to further boost Dubai's status as a major world trade hub.
The emirate's economy is expected to grow by 4.5 per cent this year, according to the Department of Economic Development, with retail, manufacturing, trade and real estate services remaining important. Moreover, despite falling oil prices, government spending is expected to remain as planned in the run-up to Expo 2020.
Large-scale investment in infrastructure projects such as Al Maktoum International Airport is also predicted to have a positive impact on Dubai's economy.
Once completed, the airport will be able to service more than 160 million passengers and 12 million tones of cargo a year, which, in turn, should provide a boost to Dubai's hospitality and industrial sectors.
A larger number of people visited the emirate last year; it is estimated that in excess of 11.9 million people came to Dubai in 2014 — a record-breaking figure — with important source markets being India, Saudi Arabia and Russia, as well as other European countries.
Also, falling oil prices may lead to a reduction in airfares, which will attract more visitors to the region. Dubai's reputation as a cultural destination has grown over the past few years and looks to further strengthen with the development of The Opera District, for example. Sporting and Mice events should also play a large role in enhancing the city's status as a global events hub.
Luxury real estate
In the real estate sector, we expect to see a softening of prime residential rents and prices by 5-10 per cent and up to 5 per cent this year, respectively. New mainstream residential schemes that are scheduled to be completed in 2015 amount to approximately 5.5 per cent of the existing housing stock. On the same basis, the figure for the prime property segment equates to just 2 per cent.
Foreign investors will continue to be attracted to Dubai's luxury real estate market. After all, the emirate offers significantly more value for money than other international markets such as London, Hong Kong, Monaco, Moscow, Mumbai as well as Istanbul.
However, this will be a cautious year. The introduction of macro-prudential measures over the past 12-18 months illustrates the effort made by authorities to avoid another real estate bubble. Dubai's prime property sector is on a sure footing to face what the future brings.
It will be a positive year for potential buyers, who can look forward to seeing luxury property prices that accurately reflect real market fundamentals.
Source: James Lewis, Special to Property Weekly