Worst may be over for local property market

Dubai: As far as linings go, this may not be exactly silver. Even then, the local property market is taking on a measure of confidence from a trend that's become more noticeable over the last quarter or two.

During this period, there has been sharp decline in the number of listings of "quality" completed properties being put up for sale in Dubai. These are the ones usually located in the Emaar clusters as well as in Dubai Marina and Palm Jumeirah.

"What the drop shows is that the waves of panic selling are behind us, and what's left are investors who can hold off on any future exit until such time property values recover," said Iseeb Rahman, managing director of Sherwoods Property.

"These investors are more or less on top of their mortgage payments, and likely to have leased out their properties thus ensuring a certain yield from the investment. They can afford to sit out a soft market."

Indeed, in locations such as Downtown Burj Khalifa and for select properties within, for instance, there is more demand going than there is available stock.

In any property market, the rule of thumb is that a decline in sales listing would have potential buyers seeking alternatives, such as those projects nearing completion or even a year or more away from delivery. For such buyers, there's a lot to choose from, but are they about to sign on the dotted contractual line?

As far as developers with on-going projects are concerned, the answer to that is still a big "If". They haven't seen any rush of buyers at their sales offices. Those prospective buyers out there are not about to get into sales agreements when there are still doubts over whether property values have indeed hit the bottom.

On this score, Rahman talks of an entire floor in a Jumeirah Lake Towers (JLT) office high-rise being acquired by a company for Dh11 million. No problem there, but the very same floor was carrying a price tag of Dh20 million late last year. Who knows whether three or six months down the line, the same would have fetched even less.

"There's more stock coming up in both JLT and Dubai Marina in the near term, and it's difficult to predict what this would have on the existing supply," Rahman added.

"That's also the risk existing investors face if they hold on to their properties too long in the hope they will get better prices later on. A huge risk, I say."

Unless it's for their own use, potential investors will also have to deal with the rental situation, the prospects for which continue to be downright uncertain. Every quarter starts with anecdotal evidence of a particular property in a prime residential cluster being leased out for much lower than a quarter or two earlier.

Freehold areas

John Davis, the regional CEO at Colliers International, does not see any turnaround happening on the leasing side any time soon.

"The decreases in the prime residential freehold areas will possibly just be slower and less than in the other areas."

As for Dubai Marina and JLT in particular, "We do foresee rentals softening further."

That inevitably means rental yields for investors would be nothing to write home about, at least in the medium term. Would they then want to go through the rigmarole of acquiring a property, and — unless they are cash buyers — lock themselves into a 10- or 15-year mortgage agreement? That too when interest rates look set to harden? Again, there are no emergent solutions that would offer some clarity.

Mortgage availability is the other big unknown. At no point during the recent boom-and-bust phase were local mortgage rates ever said to be on the competitive side. Even now, lending institutions are in mood to ease up on this key factor that could stoke recovery.

From a lender's perspective, given all that has happened in the past, such reluctance is justified. But that's not the same as saying that lending is not taking place at all. "We are aware that several banks are currently in the process of lining up new residential mortgage products for a launch during early 2011," said Jonathan Fothergill, director of UAE valuations at Cluttons Middle East. "However, despite this, banks' existing criteria for new applicants remain very tight."

Even if mortgage lenders do get to be more active, the number of projects they can associate with are — to be realistic — limited.

Such projects have to be near or at a point where a definite completion deadline is in sight to interest buyers. And the completed development must answer to the description of being a quality build. Developers cutting corners on the finishes and interiors will be found out as buyers are no longer willing to tolerate shoddiness.

With buying activity limited and access to mortgage coming with several caveats, the only movement that's taking place in Dubai's real estate sector relates to leasing. During the last quarter, there's evidence of some degree of momentum building again in white-collar recruitment, although it has to be said these are still on the lower side and still in the doldrums as far as the bell-weather banking sector is concerned. But the continued activity on the leasing side is a positive the property market will take into the new year.

"Certainly, the trend of people upgrading their rental accommodation to get more for their money is continuing," said Fothergill.

Remaining consistent

According to data from Better Homes, the property firm is seeing less of the sort of "trading up" that was so prevalent in 2009, when rents had dropped precipitously.

"However, our monthly transactions over the last quarter and indeed throughout 2010 remain consistent," said a Better Homes spokesperson.

"The number of property owners enquiring about listing properties with us has also remained at steady over the last six months."

The feedback that's being heard loud and clear is that the worst is definitely in the past for the property market. Now, the market players and - any buyers out there - have to decide what sort of future they can comfortably live with.