Dubai real estate deals down as investors stay wary

Property transactions down 45% in Q3 as steadying rents fail to tempt buyers

Transactions in Dubai’s battered property market fell by 45 percent in the third quarter of the year as wary investors stayed on the sidelines, real estate consultancy CBRE has said.

The number of residential deals tumbled to 1,459 in the quarter, down from 2,648 in the year-earlier period, despite rents in the emirate’s prime developments showing signs of steadying.

“There’s a lot of uncertainty in the market still. Despite stabilising prices, there is still reluctance to get back into the market, certainly on the investor side. At the moment, people are still slightly risk averse,” said Matthew Green, head of research and consultancy at CRBE.

Apartment rents fell one percent from the second quarter, with the year-on-year fall at around 19 percent, hit by the release of new properties across Dubai.  The decline has seen landlords in some developments drop rents below market rates in a bid to fill their properties, CBRE said in its third quarter 'MarketView' report.

“The availability of properties at competitive rates… is forcing landlords to offer properties below market rates in order to reduce void periods and neutralise the loss of income through service charge dues,” analysts wrote.

Though villa properties continue to outperform apartments, lease rates tumbled 10 percent year-on-year with smaller houses worst-hit by the declines, the report said.

Average lease rates for two-bedroom apartments fell 26 percent year-on-year, reflecting an oversupply of townhouse units in Jumeirah Village and the Mirdiff area, CBRE said. Five-bedroom villas saw a two percent decline year-on-year.

Property prices in Dubai soared after the city opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments.

From start-2007 to mid-2008, prices rallied almost 80 percent, Morgan Stanley estimates showed, with billions of dollars worth of new projects launched by local developers.

But home prices in Dubai, the Gulf property market that had the biggest reversal because of the financial crisis, fell more than 60 percent in the wake of the global credit crunch.

Jones Lang LaSalle said in September the emirate had shown small signs of recovery with house prices increasing in prime areas and the number of transactions rising. But analysts remain concerned that the estimated 33,000 new homes expected to hit Dubai’s market by end-2012 could cause fresh declines in rental and sale prices.

Arqaam Capital said last week that residential prices could fall a further 20 percent this year and next because of excess supply.

Analysts have warned that Dubai risks developing a two-tiered property market with villas and apartments in poorly maintained developments proving difficult to rent out or sell.

Prices in Dubai’s Discovery Gardens plunged 10 percent in the third quarter as developer Nakheel released new units to the market at rents that undercut owners, Asteco said this month.  

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Posted by: Luis

What has happened to the new Property Visa, when will that be implemented ?

Posted by: Amused

As far as Rogue developers are in power, there is no transparency in service charges and no control on utility cost,........going down seems the only way for Dubai properties. Put your acts together and you will see some light

Posted by: Vicky

It is a fallacy to link Dubai real estate prices to purchase activity. I don't believe that even a further 20%~30% slide would enthuse buyers. Key issue is the confidence in the industry and the regulatory environment around it. Investors get nervous if the ground rules are set on unpredictable, change-as-you-go mind set. Most often you don't get what you are promised and worse still, left with no frame work to fight the unscrupulous broker/developer/land lord nexus. Who wants to buy a bagful of trouble and decay, even if the package came at half price? Rather than connecting fancy debates and real estate speculation to supply & demand (or global scenario), we should pick on the guys on wheels who hold the industry fate literally in their hands. It has been a generous fox-hunting season for a while and investors are the ones on the run to save their skin. It will take a while for memories to erase and the authorities haven't had the courage to start the rehab process yet.

Posted by: Buddha Eyes

Very well said; lack of confidence in the industry and the "unstable" regulatory environment are (next to the "badly" planned over supply), the key issues.

Posted by: Dubai expat

Spot on!!!

Posted by: Abu Zahra

2+2 is always 4. It cannot be either more or less. What I mean is simply because the prices fall there will not be more people in the emirate to fill the vacant places. The number of people in the emirate will be proportionate to the economic activity around. And if the employers stick to the policy of providing housing to the employees instead of house rent allownace, more people will start living in the accommodtaion built for them rather than remitting the money out of the country and harming the economy. Simple funda which should be taken into account by the people who matter!!

Posted by: Quikr the better

Internal shufflings are just transactions do not change the end result. Someone is vacating a flat in one area to take the other.

Industrialisation and business incentives are the onlyway to bring more families and professionals from other markets. Expenses till their visa stamping is not encourging for the new investors. Even the running mid-size firms are feeling too difficult due to dropped out projects and unpaid jobs. For small service or profession licenses, legalisation charges of 10 employees are higher than the business capital.

Hope to see the charges back to 1990s level that would reflect possitive in all the sectors including property.

Posted by: Quikr the better

Good idea, but even if companies provide accom to their employees in Marina, somewhere else flats are getting vacant. We do not have any homeless in Dubai while we type here and do not have people in the market to fill these new developments.

The more we delay, the more will get emptied. It is not only building prices dropping down from peak, but number of firms grown during peak are find it difficult to survive day by day without having enough people movement per sqmtr in those malls.

Posted by: The Consultant

Actually if rental prices go down more people will live in Dubai. We saw that in the aftermath of the real estate crash, people who had been priced out of Dubai and into the Northern Emirates were able to afford to move back. Likewise, many people who work in Abu Dhabi prefer to live in Dubai and commute, for a combination of lifestyle reasons and the rent differential.

On a larger scale, companies will take on new employees when they think the value that employee adds significantly outweighs the cost of employing that person. The cost of housing (whether provided directly or by way off allowance) is a key factor in that equation.

Cheaper rents are therefore likely to bring more people to Dubai., which will be necessary to absorb the surplus housing units currently and soon-to-be available. This is the first stage in the process of the recovery in Dubai's housing market - a simple case of supply and demand.

Posted by: SAM

A direct quote from this article:?The availability of properties at competitive rates? is forcing landlords to offer properties below market rates in order to reduce void periods and neutralise the loss of income through service charge dues,? analysts wrote. This is strange; I always thought that market rates are determined by supply and demand! I really like to know what is the definition of "Market rates" that is used by these analysts.

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