Dubai realty prices ‘deflating gently’

Dubai: Transaction levels have slowed, while oil price drops and currency volatility could yet get more dire in the coming weeks — but none of these need have a terminal impact on the UAE property market’s health this year. And there are quite a few valid reasons too.

“This time’s different from 2008 — there are far fewer developers and they are being smarter second time around,” said Alan Robertson, CEO of the real estate consultancy JLL Mena. “They are keeping an eye on the demand side better and have in place better methods to gauge it. They are also getting better at tweaking the mix of the coming supply.

“The impact on Dubai from the oil price situation would be minimal in the short term. Only if the weakness in prices stretch to three or four years would there be more of an impact, and that too has more to do with sentiments than anything.

“What’s happening right now is not a case of the property market bubble bursting ... but of deflating gently.”

JLL has issued a report detailing eight key trends that could show up on the UAE’s real estate radar this year, which would be a period of ‘welcome stability’ and during which residential values could soften by ‘up to 10 per cent’.

Over the last decade and more, what happens in Dubai/UAE’s property market — and sentiments that drive these — are of vital importance to the rest of the economy, from the construction industry to banking and just about everything in between. These linkages, if anything, have got even more firmly established over the last two years.

“In that period, the [Dubai] property market took in three years’ worth of pent-up demand (the period between 2009 to early 2012 when nothing was happening) as well as that generated by new demand,” said Robertson. “A bit of a quiet period is thus good for stability. Even if we don’t see much action on the surface, a lot is happening behind the scenes.

“There are some major construction contracts getting readied by design teams and which would gain momentum later this year.”

As for future investors, Robertson believes that if one set of buyers fails to turn up, another could easily replace them in time.

The local property market should also be able to withstand any change in the interest rate regime and what that would mean for mortgage takers. “Last year, only 40 per cent of the deals concluded were backed by mortgages, though it’s still an improvement on the 20 per cent level from three years ago,” said Robertson. “But you have a market such as the UK where 90 per cent of transactions are mortgage-based.

“As such an interest rate hike should not represent such a burden on UAE market prospects — this is a market that remains comfortable with dealing in cash.”