Property | UAE
Realty check
Prices have risen? Don't get your hopes up, say the experts, unless you've invested in one of these areas...
- By Andy Andy van Smeerdijk, Freehold Monthly Editor
- Published: 11:44 June 15, 2009
- Image Credit: Supplied photo
- Emirates Hills properties have risen an average of 9%: HSBC
HSBC's June report made headlines recently with Dubai's average residential prices estimated to have increased 4% in April from the previous month and in May 5% month-on-month. Apartment prices increased by 9% in May while villa prices continued to fare poorly, down 11% compared to April. Could this the beginning of the bounce back? Have prices bottomed out? Many agents caution investors not to be too concerned with general trends; prices vary depending on areas and developments.
The price rise reported by HSBC isn't across the board, says Paul Sharland, sales development director, Dubai Luxury Homes. “I would certainly agree that in some established areas this [price hike] is the case. The Palm Jumeirah villas, prime Downtown properties and DIFC commercial are three such examples. But I wouldn't go so far to say this is happening across the board as it certainly isn't.''
Paul suggests investors should stick to prime areas, but is “very choosy'' about the areas he'd recommend. “I would only look for the most sought-after properties and at prices where we see real value for the buyer. Top of my recommendations would be DIFC commercial either ready or nearly ready. In Downtown, Burj Dubai apartments and full Burj and lake view apartments and also Tiara Residence on the Palm.''
Prices have droppped, not risen
So what does Landmark Advisory make of the HSBC report? Jesse Downs, director of research and advisory services at Landmark Advisory, says average prices have slightly dropped. “Based on our initial analysis of recent transactional data, sale prices on average decreased marginally in April and May. This discrepancy highlights one of the main advantages of accessing and analysing transactional data instead of asking prices like many banks. Asking prices can be a particularly problematic data source in a rapidly changing demand driven market such as Dubai.''
Landmark Advisory has seen a stabilisation in inventory, she adds. “The majority of sellers unwilling to lower their prices have already withdrawn their listings and now potential sellers have more realistic price expectations.''
Paul has seen a withdrawal of inventory. “But not on a large scale,'' he adds. “The obvious reason is that sellers see more confidence in the market and now want to wait to, hopefully, achieve a higher selling price at some point in the future. Other examples are owners with multiple properties who have sold one or two of their properties and are in a much better financial position than what they were a few months ago so have now taken the rest of their inventory off the market. Owners who have now decided to rent their property rather than sell is another example.''
Elaine Jones, CEO of Asteco, notes the attitude of sellers as a factor. “Willing sellers are inconsistent in their expectations. This has been an issue in our market regardless of the state of the market as there are several owners who have bought property as a trading commodity rather than an asset either to live in or to generate income from. There is a difference between those that ‘need' to sell versus those who are watching to determine when they personally should come out of a certain property.''
Prime property vs averages
So should we read anything into these slight rises? “I wouldn't fall into the trap of generalising about the Dubai property market as a whole,'' says Paul. “There is a huge difference between an average apartment in an average area (where oversupply is possible in the future) and a prime apartment (location, view, finish) in an established, sought after area. I think what has happened is because the fall in property prices was so aggressive and so swift – in all areas and developments – that it has now occurred to the more astute buyers that they are able to buy prime property in a sought after area at half the price of last summer. These buyers see this as real value.''
Yet Landmark's transactional data suggests that prices are softening, says Jesse. “We expect another dip in prices this summer.''
Foreign buyers swoop?
The surge in foreign cash buyers reported by HSBC hasn't been notable, says Paul. “But if the dollar continues to weaken then I'm hopeful that we will do in the near future.''
However, Jesse says there are signs that they are starting to return. “A hint of this is the stock price of the DFM has risen, meaning overseas investors are becoming more active in the Dubai market again. The next logical step would be that these foreign investors would start to come back to the property market as well.''
Asteco has experienced an increase in inquiries from local and overseas cash buyers, says Elaine. “Put in perspective though, this means that the very low number of potential buyers over the last two months of 2008 and first three months of 2009 is now increasing. The leasing market continues to be extremely strong and the interest from international funds in buying fully leased buildings to give an immediate income/return on investment is strong.''
Mortgage outlook
Financed property sales are on the uptake, says Jesse. “In terms of transactions in Dubai, we've seen an increase in financed transactions in May during which over 30% of units transacted were financed. Between January and April this year, only approximately 17% of transactions in Dubai were financed. Abu Dhabi is markedly different with the vast majority of properties acquired with mortgages.''
Paul says the lenders are still being “extremely picky'' on whom they lend money to. “It appears that only the ‘triple A' rated clients who want a smaller percentage LTV are the customers the banks want to lend to – as in ‘no risk'. But I'm sure as the year goes on the mortgage market will open up again, albeit more cautiously and I am sure that once this happens it will add more confidence to the market.
“There are a lot of potential buyers out there who have a 20-40% deposit who at this point in time are unable to ‘borrow to purchase' because of the current strict lending rules.'' Once the lending rules relax, he thinks there is a real possibility of much activity in the market.
Elaine says there are two factors needed to stimulate the market. “Mortgages need to be freely available and at affordable interest rates, and investor confidence needs to be re-ignited. Until that time, and the longer that the issues are unresolved there will be people who need to sell at a price that will be reflective of their own circumstances. We are aware of transactions within the same building where one seller is prepared to sell at a very different price to another due to their own commitments. We must not generalise. Certain sectors will ‘bottom out' at different times to others based on the quantity or quality and demand for that asset class.''
+5% the rise in average residential prices in May: HSBC.
-16% the drop in average apartment prices since Sept 2008
+9% the rise in average apartment prices in May: HSBC
-11% the drop in average villa prices in May, according to HSBC
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