Weekly Dubai real estate news digest. Issue 50

Dubai realty needs stability 
Welcome to the fiftieth issue of Market Insight, your weekly guide to what's happening in the Dubai real estate market.
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MARKET INSIGHT. Weekly guide to Dubai's property scene
Issue 50 |  June 15, 2014

Dubai realty needs stability 

While asking prices for the purchase of freehold homes have cooled down since last year, rentals still seem to be skyrocketing. However, such increases in prices can cause an imbalance in the economy and experts across the Emirates have been stressing the importance of taking preventive steps.

Current asking values for ready property are now back to what they were late last year and just before the Expo 2020 win premium took hold of them. "Between August to December last year, property values were up 10-12% and in January, there was a sudden 10-15% hike in what owners were demanding (for completed freehold homes)," said Chandrakant Whabi, CEO of Acrohouse Properties. 

Clearly, buyers are showing an innate resistance to what they perceive as too high a premium. Mortgage caps have also affected demand patterns since potential buyers are now expected to put up a mandatory 25% to buy property.

However, by the looks of things, bringing stability in rental growth rates could take more time.

"Rental values will only cool off when supply needs are being met, particularly in the mid-income category where rents have shot up the highest (34% on a year-to-year basis versus 23% on a city-wide basis)," says Sameer Lakhani, managing director, Global Capital Partners.

The problem lies in the impact continuous growth could have on the market. In fact, the UAE Central Bank has issued its strongest warning to date about the property market overheating. 

The market rebounded last year as the economy turned a corner amid increased government spending on infrastructure and a revival of trade and tourism. In the past year, bankers including Tirad Al Mahmoud, chief executive of Abu Dhabi Islamic Bank, have raised concerns that rising property prices will increase business costs and make the UAE less competitive. 

The Central Bank says the surge in prices is being fuelled largely by cash investors, unlike in the run-up to the 2008 financial crisis, when banks who provided credit for purchases were exposed to a market crash. It said that "analyses of banking data support the hypothesis that the current market recovery is mostly driven by equity buyers and/or reliance on external funding sources."

Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. While there has been increased concern from all those operating in the sector, it has become quite apparent that Dubai's growth this time around is different than the 2008 crash. However, it is also clear that more measures need to be implemented to prevent the market from overheating and we are bound to see more announcements come through this year. For all those concerned as to what the future might hold, be sure to follow our weekly updates to get a rundown of the latest.


Pashma Manglani


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'Rent increase can cause economic imbalance' 

Only one-half of the UAE's efforts to cool down the property market from overreaching itself has worked up to now - halting the sudden and sharp spike in asking prices for homes in freehold clusters.

The other factor that is creating an imbalance in the local economy - the rise in rentals - still has not been brought under control. By the looks of it, bringing stability in rental growth rates could take more time.

"Rental values will only cool off when supply needs are being met, particularly in the mid-income category where rents have shot up the highest (34% on a year-to-year basis versus 23% on a city-wide basis)," said Sameer Lakhani, managing director, Global Capital Partners, an investment firm.

"The supply that can accommodate the current demand dynamic is expected to materialise only by 2016-17 - unless the supply is altered by developers. There is evidence this is starting to happen; but demand for housing is firmly based on strong job creation. In the interim, the only solution lies with regulatory authorities to closely monitor rental practices and fine errant landlords."  


Read more on Gulf News

Market may be overheating: Central Bank

The Central Bank has issued its strongest warning to date that the property market may be overheating.

Bank economists estimate that in 2013 house prices increased by 24% in Dubai and 21% in Abu Dhabi. At the same time, rental yields have dropped from 7 to 8% to between 5 and 6%, property experts say. The disparity indicates an imbalance in the market.

The regulator warns: "A major market correction...could harm lenders to the real estate sector, as falling prices would reduce the repayment capacity of developers." 

The Central Bank says the surge in property prices is being fuelled largely by cash investors, unlike in the run-up to the 2008 financial crisis, when banks who provided credit for purchasers were exposed to a market crash. Property loans last year accounted for only 23% of commercial bank lending, or AED287 billion.


Read more on The National

New fees help curb speculation 

The doubling of the property registration fee is lowering speculation and helping to reduce the risk of a bubble forming in the market, according to the Dubai Land Department.

Data from the regulator showed that AED101 billion worth of transactions were registered since the start of the year, attracting 16,743 investors.

"The strong performance in the real estate sector indicates a trend that we expect to be sustained over the next year and beyond. The number and value of real estate transactions since the beginning of the year to date indicate both that investors have become more aware and that the market has become rich with investment options," the director general Sultan Butti bin Mejren said yesterday. He said that demand was a result of an improvement in fundamental economic factors rather than speculation. 

According to him, the increase of the registration fee to 4% to 2% last year has helped "block speculators who drive the market and contribute to a real estate bubble."


Read more on The National

Courts release first list of cancelled projects 

A list of 18 developers and 36 developments posted on the Dubai Courts website is believed to be the first definitive list of cancelled projects in the emirate.

"Ultimately, this is about transparency," says Matthew Green, head of research and consultancy at CBRE. "One of the major gripes investors and people that work in the market is the lack of transparency, particularly around issues like this. Which projects are cancelled, which are still valid. It is just one part of an overall strategy to get the market towards maturity."

The developers include High Rise Properties' Dorna Tower and Orchid Residences among others, Makaseb Properties' Quattro West M E Development LLC's Windsor Residence.

While attempting to contact the developers, The National found most numbers unobtainable.


Read more on The National

DWC target start-ups with office space 

Dubai World Central (DWC) is releasing more office space, targeting start-up companies in the free zone.

About 200,000 square metres of space has already been let this year in the business part and the latest units will be aimed at small and medium-sized enterprises, the company said. It did not disclose how much new space would be available to rent.

About 1,000 companies are registered at the DWC business park, including Nestle and Sinopec Petroleum. Property brokers say its location close to the site of the World Expo 2020 has spurred demand even as the broader office market in the city continues to suffer from oversupply in many locations.


Read more on The National

Palm Tower to have city's highest swimming pool 

Nakheel said that is has signed a letter of intent for Shangri-La Hotels and Resorts to manage The Palm Tower, a 52-storey hotel and residence that the developer plans to build on Dubai's Palm Jumeirah. 

On its rooftop, the complex includes a 50th floor, 360-degree infinity swimming pool - the highest in Dubai - bordering all four sides of the building. 

The Palm Tower comprises 504 high-end, furnished apartments, with the Shangri-La to feature 290-rooms and suites occupying the first 18 floors of the building.


Read more on The National

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