Cheap oil hits level of UAE real estate deals in H1

Cluttons says falling transaction levels have been seen across Dubai, Abu Dhabi and Sharjah
Cheap oil hits level of UAE real estate deals in H1
By Staff writer
Tue 01 Sep 2015 02:00 PM

Real estate markets in the UAE are seeing falling transaction levels as oil prices continue to decline, according to a new report by Cluttons.

With a 54 percent decline in the price of oil prices during the past 12 months, property markets in Abu Dhabi, Dubai and Sharjah are beginning to suffer, the real estate consultancy said.

Its annual 2015 UAE Property Report reveals that the direct correlation between hydrocarbon revenues and state spending will also put pressure on the rate of job creation in the UAE.

The report said that a further reduction in oil prices is also likely once Iran receives the green light to begin oil exports. In turn, this will impact the rate of office space take up and subsequently, the creation of households and overall residential demand, Cluttons said.

"The impact is expected to be variable across the nation's three largest emirates. However, the return of an Iranian variable to the national real estate equation could be particularly momentous for the real estate market," the report said.

Steve Morgan, chief executive, Cluttons Middle East said: "We see a number of economic factors at play which will impact the level of transactions in the near term. The decline in oil prices has seen the government take necessary fiscal measures to boost its financial position, including the deregulation of fuel prices and the much talked about future move towards the introduction of VAT and corporation tax.

"These initiatives will likely cause consumer price inflation levels to increase, resulting in a reluctance of tenants to pay higher end rents and families to purchase homes.

"With the expected lifting of Iranian trades sanctions, it is our view that Iranian nationals will seize the opportunity to make significant real estate investments in the UAE, particularly Dubai, pushing them back up the buyer nationality league table," he added.

In 2010, Iranian nationals accounted for 12 percent of Dubai's real estate transactions, positioning them in fourth place behind Indian, British and Pakistani nationals. Data from the Dubai Land Department on investment volumes has showed investment from Iranian's had dwindled to a low of just 3 percent during the first quarter of 2015.

Cluttons said house prices in Abu Dhabi slipped by 0.2 percent in the second quarter of 2015, the first contraction since Q3 2012. Demand remains stable in the top-end luxury market according to the report, driven by affluent Emirati and GCC buyers continuing to home in on schemes based on perceived exclusivity.

The Cluttons report highlighted a 1.5 percent rise in average rents, registered during the second quarter, pushing annual growth in the capital up to 3.9 percent.

Cluttons said it expects Abu Dhabi house prices to see further slight to moderate price falls over the remainder of 2015. Overall, quarterly house price declines of between 0.5 percent and 1 percent can be expected in both Q3 and Q4, while rents are expected to remain largely flat during H2.

In Dubai, there has been almost no change in average apartment values during H1, with a 0.6 percent fall recorded between January and June, Cluttons added.

Faisal Durrani, head of research at Cluttons, said: "The villa market continues to bear the brunt of the Federal Mortgage Cap restrictions, which have made affordability a central issue for potential buyers who are now required to hold significant equity to fund upfront costs.

"Values on average declined by 3.4 percent during Q2, bringing the annual rate of change down to -7 percent. We expect a further 5-7 percent fall in villa values is expected this year as supply levels rise and affordability issues challenge buyers."

Cluttons' report said average rents in Dubai declined by 0.9 percent in Q2, taking the overall change in the six months to June to -1.3 percent.

Durrani added: "We expect the sales market to weaken further this year based on a combination of the Federal Mortgage Cap, affordability challenges and a strengthening supply pipeline, which has seen 41,000 new units announced already this year.

"It is our view that the rental market will continue to perform at a reasonably stable level, with further declines in the region of 1.5-2 percent likely during the second half of the year. The severity of the decline is being hugely offset by the strong rate of job creation and population growth, which remains stable, strong and diverse."

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