Don't be surprised to see a small price correction, but it won't be big or last long, says Alex Nicholas
We at JustRentals.com believe that Dubai property rental prices may indeed go down! More so our data shows that in some areas this has already started. Property sale prices may also follow suit.
However, and a very big however, this may not last long, may only affect some communities and prices may start rising again before the end of the year.
We are expecting this to be a minor correction and we do not expect it to be sustained beyond a period of a few months. We also believe that this will only affect some communities, particularly those that saw the most dramatic price rises over the last 18 months.
The market has already seen prices at stable levels for the last 3 months. In essence, we believe this to be a very small market cooling which has already started.
Using the data available to us from thousands of real estate agents in the UAE, coupled with a more direct approach of getting feedback from real estate company owners, managers and agents on the ground, we believe the market to have cooled in activity since the last 3 months.
Rental prices have been stable for a few months and we are now seeing some limited signs of price reductions. For example, our price index analysis tool (which you can also check out at JustRentals.com) shows that many areas such as JLT, Marina, Palm Jumeirah are starting to show price drops of an average of 1 to 2 percent for certain property types.
We also know from the agents advertising on our portal that some landlords are considering dropping or have already dropped asking prices - but only a little! The evidence is not overwhelming at the moment but in comparison to the previous 18 months (which have only seen sharp rises across the board) we believe it’s significant enough to show that the UAE real estate market is now entering a cooling period.
We predict that some areas will see marginally lower or stable prices. Tenants may be able to negotiate a little bit for these properties on either the price or the number of cheques. Agents will of course be able to advise you on whether the landlord is likely to be flexible.
We believe that the price increases were so sharp in some areas over such a short time that the market is "taking stock". In addition rental activity is lower in these months and picks up again in the summer.
This is because a large number of people move to Dubai at the end of the summer and therefore consider moving or renewing their tenancies every summer. We typically see (all things being equal) a rise of 15-20 percent in the number of leads received on JustRentals.comduring the summer months.
A minor, temporary correction has indeed happened before. During the last property boom (that ended in 2008), there was a period of approximately 6 months where apartment prices fell by 10 percent (around August 2005). However, over a period of 12 months they still went up and the following years they went up considerably.
In Dubai, this is hard to predict, but the common consensus is that despite this cooling off period that we are experiencing now, prices will continue to increase and the debate is more centered over how much. We believe that future price increases will take a more stable course as opposed to the sharp rises seen in the last 18 months 'recovery'.
The economy underpins demand for housing and therefore the prices. A healthy economy is forecast for the UAE by the IMF.
This analysis of course will surprise a few given the large and rapid increases in property sales and rental prices over the last 18 months. This may indeed be startling to some (especially landlords) who expect a non-stop rise in prices on the back of the 2020 Expo win for Dubai.
However, early signs that we are in a cooling period are there, but don't expect this to last too long.
Alex Nicholas is a director at JustRentals.com