Dubai Market Watch Q2-Q3 2014
The country’s fundamentals have stayed strong this quarter; with the UAE Department of Economic Development predicting economic growth of 4.7% this year, which is being heavily driven by the tourism, trade, transportation and the real estate sectors. Dubai property market showed positive performance in the second and third quarters of the year with slight sale and rent increases in the majority of the districts across the city.
See also: UAE Real Estate Analysis - Q1 2014
However the impact of the Dubai Government’s cool down measures, introduced during the last quarter of 2013, as well as the doubling of property registration fees to 4% and the new mortgage cap, combined with the master developers’ stronger requirements for off-plan project buyers, have reflected positively on the real estate market with a slowdown in the sales volumes and in growing rates.
Sales transaction volumes recorded by the Dubai Land Department were marked by the usual Dubai market summer slowdown. With residents making the most of the holiday season to travel outside the country, residential transactions declined by approximately 36% q-o-q. Additionally, a majority of investors sought off-plan properties rather than completed projects, which reflects in sale transaction volumes. However, the opposite trend is observed for the end-users who prefer ready properties. This slowdown is a result of a moving market that motivates buyers to wait and see how it will perform in the near future; in the meantime the stock market is an attractive alternative to the real estate market giving investors more liquidity and promising higher returns.
It nevertheless provides a great opportunity for buyers to invest in properties as lower demand allows for more negotiation. This is reflected in the price stabilisation witnessed this quarter; indeed, the majority of the communities show prices rising at a slower pace, or in some cases, have even started to reduce in communities such as Business Bay or Dubai Marina, with y-o-y prices increasing by 25% on average in all monitored areas.
As for the rental market our analysis shows that the most searched for communities were Downtown Dubai, JLT and Dubai Marina; these areas are the most desired ones for new expatriates settling down in Dubai. During the second and third quarters rents stabilised in most of the communities, year-on-year however rents increased significantly across the city. Despite this recent stabilisation we noticed residents tend to move out of these areas rather than move in; seeking more sustainable rents, they relocate to more affordable districts such as Jumeirah Village, Dubailand, Sports City or Motor City.
Alternatively, residents are shifting to the Northern Emirates; Sharjah being constantly congested and with fast growing rents, this is motivating Dubai residents to look for farer Emirates (Ajman and Ras Al Khaimah), which offer cheaper rents and are easily accessible via Sheikh Mohammed Bin Rashid Road and Emirates Road.
In the current prime residential market Dubai Marina and Downtown Dubai are the most sought-after communities for investors and end-users.
Dubai Marina’s attractiveness remains high thanks to the innumerable possibilities the community offers to its residents; the Marina Walk provides numerous restaurants and cafes, while the proximity to the beach, to Sheikh Zayed Road and to public transport including the upcoming tram, which is due for completion at the end of the year, make it one of Dubai’s most bustling area. However the community shows slowdown in the sale transaction volume; residential sale prices stabilised in the second quarter and started declining this quarter.
Jumeirah Beach Residence (JBR) witnessed the highest percentage of changes in the last two quarters with a drop in residential sales transactions of approximately 50% as recorded by Dubai Land Department. However, the sale rates increased by 8% during the second quarter but stabilised during the third quarter. Construction work of the tram in JBR and Dubai Marina have created major traffic congestion over the past few months; nevertheless JBR remains one of Dubai’s most popular districts attracting tourists as well as residents all year long on its famous Walk, its new Beachfront Mall and its numerous private and public beaches, offer good value and we expect the demand to rise with the cooler weather and the completion of construction work.
Downtown Dubai’s sale rates increased by 11% in the second quarter and stabilised in the third one. The attractiveness of this community stays high as it offers perfect balance between business and leisure to its residents, in its diverse restaurant, cafe and retail offering. With plans to expand them with the Dubai Mall Extension and the completion of several projects in the district. However we noticed a drop in residential sales volumes in the last two quarters, of 45% and 60% respectively, which we assume is due in particular to the off-plan projects recently launched in the district, master developer Emaar launched three projects in Downtown Dubai during the past five months: Opera Grand, BLVD Crescent Tower II and BLVD Heights.
Developers offer attractive payment schemes for off-plan projects luring investors and end-users in spite of the recent increases in down payment requirements and the introduction of a ban on off-plan property resale implemented by master developers in the late 2013.
The volume of sales transactions declined on Palm Jumeirah this summer; while on the other hand the average sale rate increased during the second quarter by 12% but declined this last quarter by 5%.
In these communities our analysis shows rents stabilised in the past few months.
In this quarter the top villa communities are The Springs and The Meadows, Arabian Ranches and Jumeirah Park with over 75% of the overall volume of sale transactions recorded in these areas. The summer season was quiet again this year in the villa market with a lower number of sales transactions overall in the areas we monitor. Moreover several villa projects were launched by developers in the last two quarters, thus expanding the off-plan market, which explains the decline in registered sales with the Dubai Land Department. However the number of properties these projects will bring to the market is relatively low in comparison with the expected demand; nearly 3,000 villas were launched for sale in the last six months including three projects in Arabian Ranches (Aseel, Mira Oasis and Samara Villas) and two in Dubailand (Fendi and Mudon Villas).
The average sale price recorded rose during the second quarter in the high-end segment, this quarter on the other hand a decline was recorded in the same communities except in Arabian Ranches. This luxurious and peaceful community offers state-of-the-art facilities, built around the Arabian Ranches Golf Club, conveniently located in the heart of the desert along Sheikh Mohammed Bin Zayed Road, which allows residents to have easy access to Dubai, Jebel Ali and Abu Dhabi, and avoiding traffic congestion. Additionally the community’s development of infrastructure and services keep investors’ and end-users’ interest up.
Emirates Hills has shown a high increase in the average sale rate in the second quarter that corrected itself during the third quarter; however this sudden increase should be treated with caution, as the volume of transactions that quarter was low.
Palm Jumeirah’s outstanding beachfront views, peacefulness and relaxing environment, in a chic and exclusive atmosphere along with the on-going residential and hospitality projects on the island and the upcoming development of Nakheel Mall is keeping buyers’ interest high. The community is the second villa district in which sale transaction volume increased during the second quarter (after Arabian Ranches): however with summer season the activity slowed down in the third quarter, while sale rates declined by 13% q-o-q.
In the mid-end segment average sale rates stabilised this quarter in most of the communities; the villa rental market follows the same trend.
A brand new villa district, Jumeirah Park showed stable sale rates decline in the volume of sales. The community’s current absence of facilities as well as the on-going infrastructure work can explain this stabilisation.
Turning to supply, we’ve noticed that over the past 24 months a majority of the projects launched by developers were luxurious products destined for the market’s higher-end. Despite the importance of the mid-segment, forming a major chunk of the working population of Dubai, it is largely ignored in the current real estate perspective. The services sector, mainly the hospitality and retail segments, are likely to attract a work force which is expected to fall in this segment with monthly salary brackets of AED 15,000 to 25,000. Although recent regulations implemented by Dubai Government have to an extent helped in controlling speculator activity, we realise by looking at property advertisements that it can be stated that speculation still prevails in the market. A focus from developers on this segment of the population would increase end-user buyers and, to an extent, help in weeding out speculators.
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