Mainstream residential market outperforms prime properties

After entering positive territory in mid-2011, annual residential price growth in Dubai’s mainstream segment has been very strong. That said, after peaking at 35 per cent at the end of last year, the growth rate has been weakening.

The deceleration can be attributed to higher transfer fees and mortgage  caps, in effect since last year. The new rules have impacted Dubai’s luxury homes market much more, with prices in the second quarter rising by only 6.3 per cent year-on-year. By comparison, the mainstream segment saw a 24 per cent year-on-year increase.

Mainstream locations such as Dubai Marina remain popular among western expats and continue to see healthy demand and thus price growth. This has led some investors to look in areas such as Jumeirah Village, Dubai Sports City and Dubai Silicon Oasis for value, where prices are rising off a relatively low base. Demand for property remains strong in both location types, hence prices continue to post strong gains.

The new mortgage rules are stricter for those buying residential property above Dh5 million. If an expat was to purchase a property above that value, he would need to provide a 35 per cent deposit. But the same buyer would pay a down payment of 25 per cent for properties below Dh5 million. Thus, the impact has been less severe on the mainstream segment.

Moreover, while both mainstream and luxury home prices have largely reversed their previous falls, rents in the luxury segment haven’t kept up.  Also, Dubai’s strong economy and buoyant labour market continue to attract foreigners. This rising population will need decent (and not always luxurious) accommodation, demand will soon outstrip supply. The mainstream residential segment is anticipated to outperform prime within a year.

The Central Bank’s second- quarter Credit Sentiment Survey showed that banks and financial institutions’ willingness to lend to owner occupiers, investors and others has increased, in comparison to the preceding quarter. Survey respondents were also positive about the very near-term, hence banks are fairly optimistic about customers’ appetites to borrow in the third quarter.

Source: Property Weekly


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