Dubai: Dubai’s developers and estate agents should not start placing too high a expectation on an Iranian investor led demand surge ... at least in the short term. Any upturn will be felt first by the city’s office market rather than by the residential space.
“We expect to see a number of international businesses take up position in Dubai to service any expansion into Iran,” states a Cluttons update on the Dubai realty estate sectoral trends. “The resultant impact will be a rise in office demand, job creation and therefore demand for accommodation, although this is still too early to assess.”
Late June is when the much anticipated deal could be struck that would lift the sanctions on Iran. In recent weeks, there has been a steady uptick among market sources that Dubai’s property could be among the immediate beneficiaries from the act. They believe there is a lot of pent up demand for offshore asset purchases among well-off Iranians, and which local realty can leverage to optimum benefit. Once the sanctions are off, fund flows can easily get back into officially sanctioned channels, is their thinking.
Meanwhile, the Cluttons report also puts a dampener on market values cooling off substantially through a flood of new residential supply. “With just over 12,600 units expected to come to market by the end of next year and a further 15,800 completions scheduled between 2017 and 2018, the risk of an oversupply appears to be minimal, given the expected growth in population of just under 400,000 over this period,” the report says.
“It is worth noting that 4,000 of the units expected in 2017-18 will be in the form of affordable homes on the former Dubai Waterfront site, as announced by Nakheel.”
But, for the moment, some tenants may be able to get lucky by playing off landlord concerns over looming supply and longer periods of their properties remaining vacant. “This may trigger a period of ‘off-grid’ deals, where landlords and tenants agree to rents that are not in sync with RERA’s (Real Estate Regulatory Agency’s recommendations,” the report adds.
The villa supply pipeline remains robust, with 4,000 new deliveries expected this year, another 6,000 units in the next and 3,700 units in 2017. “The secondary market in particular will be hardest hit by the rising supply,” Cluttons reports.
Apart from cash buyers, acquiring a villa has got tougher under the current mortgage cap regime. “The total amount of upfront equity required for the purchase of a Dh5.5 million villa went from 20 per cent to 42 per cent with the introduction of the mortgage caps, which meant that households aspiring to purchase had to make a substantial increase in provisions to make the transition from rented accommodation,” the report says.
“This was particularly acute for properties priced north of Dh5 million, where loan-to-value ratios changed from 75:25 to 65:35 for expatriates.”
For developers and investors seeking to sell their villa assets at the earliest, the ‘sweet spot’ is currently those units priced between Dh3 million to Dh3.25 million.
“The off-plan market has been a particular beneficiary of this emergent affordable price hot spot, with many developers homing in on this price bracket.”
