Dubai: Even before the strong market intervention — first by the Dubai Land Department (DLD) in late September and later by the UAE Central Bank — the pace of growth in Dubai’s residential property values dropped significantly during the third quarter.
In its latest update, the real estate consultancy Cluttons pegged the average capital value gains in Dubai at 8 per cent compared with the turbo-charged 23 per cent of the second quarter. Even rental value gains seem to have cooled off — Cluttons estimates this at 3 per cent between July to September against the average of 8.2 per cent in the second quarter.
To put matters in perspective, current values in Dubai post the third quarter are 25.7 per cent below the Q3-2008 market peak, 47.6 per cent above the bottom of the market in Q2-2009 and 52.3 per cent higher than same time last year.
“While the economy is clearly on an upward trajectory, the pace of income growth still lags behind rental value growth, so a period of more muted growth can be expected over the next few quarters,” Steve Morgan, head of Cluttons Middle East, said. (If this holds true, it may come as something of a relief for those residents who have already seen sharp increases in their contract renewals, in some cases even exceeding 20 per cent.)
It was from early October that the DLD raised registration charges to 4 per cent from 2 per cent, while the Central Bank put in place strict caps on mortgage lending for both nationals and non-nationals. In particular, there were strict guidelines on the extent of a bank’s exposure on purchases of second homes. “With loan-to-value [LTV] ratios on second home purchases now fixed at 60:40 and 65:35 for nationals and expatriates respectively, we anticipate further slowing in the pace of capital value growth,” the Cluttons report said.
Growing population
“Although the long-term effect remains to be seen, short-term indicators show that recent regulation appears to be stemming further sharp increases in property prices,” Morgan said. “Rather than being fuelled by ‘fly-by dealers’, current demand is primarily being driven by a growing population and rising employment levels.”
Of the individual freehold clusters, Jumeirah Village’s star is on the ascendant, with the Cluttons’ update rating it as the “strongest performing market”, with an average value of around Dh990 a square foot (up 18.4 per cent). Clusters with a longer track record such as Emirates Living and Dubai Marina recorded value upticks of 8.7 and 10.1 per cent respectively, “ahead of the broader average for Dubai as a whole”. (Interestingly, cash purchases continue to outpace mortgage-led transactions in Dubai Marina in a 3:2 split, according to Cluttons.)
“We believe concerns of the market overheating are likely to prove too negative given average residential values remain well below the market peak despite recent gains,” the Cluttons report added.
But the impact of market intervention is most marked in off-plan sales in Dubai, market sources added.
“Potential off-plan buyers need to factor in the fees — 4 per cent registration, 4 per cent transfer and 2 per cent brokers’ fee — into their price when they plan to sell on,” Niraj Masand, director at Banke M.E, said. “But it could be a good six to nine months before property value gains can accommodate these costs for the off-plan buyer.”
