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.