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Sat 23 Nov 2013 10:41 AM

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Dubai bubble concerns 'overly negative', says Cluttons

Real estate consultancy says new regulatory measures already helping to cool price rises

Dubai bubble concerns 'overly negative', says Cluttons

Recent regulatory measures introduced to help sustain and regulate Dubai’s property market are already starting to take effect, with a recent cooling in the rate of growth, according to Cluttons.

The real estate consultancy said in a new report that the new regulations have positioned the market towards a more sustainable pace of growth, with reports of a new price bubble being premature.

The report also said that steps announced by the UAE's Central Bank in October to set limits on the size of mortgage loans for housing, along with the Dubai Land Department’s recent doubling of property registration fees from 2-4 percent, are already impacting the volume of deals being recorded in Dubai’s residential market.

Steve Morgan, head of Cluttons Middle East, said: "The vibrancy in the residential market has resulted in growing confidence in the real estate sector, but we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak.

"Although the long term effect remains to be seen, short term indicators show that recent regulation appears to be stemming further sharp increases in property prices. Rather than being fuelled by ‘fly-by dealers’, current demand is primarily being driven by a growing population and rising employment levels."

His comments come just days after the International Monetary Fund urged Dubai's government to be ready to act if it sees very rapid increases in asset prices.

House prices in the emirate have jumped over 20 percent in the last year, prompting the IMF to warn in July of the risk of another bubble forming after a crash of Dubai's inflated property market in 2008-2010 nearly caused state-linked companies to default.

The Cluttons report for Q3 said average capital values continued to rise by 8 percent, albeit more slowly than the record 23 percent growth experienced during Q2.

Despite the recent gains, on average, prices are still 26 percent below the Q3 2008 market peak, although they are now 47 percent above the bottom of the market, which was reached in Q2 2009. Year on year, values are 53 percent up on this time last year.

Emirates Living and Dubai Marina continue to record increased levels of deal activity during Q3, with capital value growth rates between 8.5-10 percent, ahead of the average for Dubai.

Cluttons pointed to growing numbers of buy-to-let investors from both the UAE and abroad, plus an increase in owner-occupiers, all fuelled by affordable mortgage rates of between 4-5 percent.

Cluttons added that Dubai's residential rental market is also experiencing a slower pace of growth according to the latest figures.

During Q3 average residential rental values rose by 3 percent, following on from an 8 percent increase in the previous quarter.

Morgan added: "A slowing in the rate of rental vale growth can also be expected in the residential rental market as we appear to be nearing the threshold of relative affordability. While the economy is clearly on an upward trajectory, the pace of income growth still lags behind rental value growth, so a period of more mute growth can be expected over the next few quarters."

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Patrick 5 years ago

I would be stupid to believe any report that is posted on the net.. follow your instinct and judgement and stay away from what you do not understand!

Not Buying 5 years ago

Good advice, don't believe anything that is posted on the net.!!

Still not buying anything.

Yasser Gaber 5 years ago

I do not know where this gentleman is living?? the rent in Al Barsha increased by at least 30% year on year and he is talking about 11%!! False information like this are the main culprit to catastrophic results.

Ronald 5 years ago

It is entirely within the interests of Cluttons and their fellow travellers in the mendacious real estate market to suck up to the government and pretend the faux "cooling" methods are working. This is just an unsubtle ploy to relax investors into throwing more money at a market that is moribund, has no future and in which billions of dollars has been wiped off values and investments. These PR puffs are just that, puffs of smoke to go with the gilded mirrors being shown the foolish.
Yes, there are opportunities, but only long-term and the days of stagging are long gone as flipping is nigh impossible.

Paolo C 5 years ago

Any report coming from someone who decided to "enslave" himself in the region is simply propaganda.

Mike B 5 years ago

"overly negative" but not entirely negative? How negative is too negative? How many of the players from the original bubble are still in place? How many serious regulations are in place to stop a bubble from expanding again? Yes, perhaps "overly negative" but not entirely negative. Let's play semantics as the economy burns again...nice plan.