By Andy Sambidge
New Knight Frank report says prices may pick up again in H2; single digit growth expected during 2015
Growth in prime Dubai residential prices in the first half of 2014 was "sluggish" due to a combination of higher transfer fees and the introduction of mortgage caps which were introduced late last year, Knight Frank has said in a new report.
Its Dubai Prime Residential Review for Spring 2014 said prices rose just one percent in the first three months of the year, with estimates suggesting that the second quarter was "equally sluggish".
By comparison, prime prices in Dubai rose on average by four percent per quarter last year, the real estate consultancy said.
Knight Frank said mortgage caps appear to have hit the emirate’s residential property market especially hard, as around 25-35 percent of luxury home buyers rely on mortgage finance for purchase.
The report said price growth was likely to resume in the second half of 2014, with single digit increases likely during 2015.
Victoria Garrett, Knight Frank's associate partner of residential, said: "The double whammy of higher transfer fees and the new mortgage caps are having their desired effect, although the latter has been especially effective in dampening buyer activity.
"In Q1 2014, transaction volumes across our prime basket of properties were 10 percent lower compared to the preceding three months and were nearly 28 percent below a year earlier."
She added that Dubai’s luxury home prices still look relatively low in historical terms, as well as compared to other global cities.
In Q1, the price of an average luxury home was 15 percent below its 2008 levels, with $1m buying approximately 146 sq m of luxury living space in the emirate – six times more than in London, seven times more than in Hong Kong and ten times more than in Monaco.
On future supply to the market, Knight Frank said there was little in the way of new, prime residential projects are due to be completed in 2014-15.
"That, combined with the healthy economic environment, a well performing labour market and the prospect of loosening credit standards, suggests that residential prices will resume on an upward path in the second half of this year, before seeing a single digit increase in 2015," said Garrett.
In March, Knight Frank named Dubai the world's best performing real estate market during 2013 with price growth nudging 35 percent.
The Knight Frank Global House Price Index showed mainstream property prices in the emirate rose by 34.8 percent during the last 12 months.
Although the increase slowed slightly in the last six months to 15.3 percent, Knight Frank said prices in Dubai were still 25 percent below their 2008 peak.
Hmmmm - an article that paints the true picture that the high end market has really slowed down.
I love the way that Knight Frank (who are only a real estate agent after all and sell at the high end) end the article on a positive note with the reassurance to all of the ready buyers that of course prices will continue to go up (even though transaction volume is down over a quarter).
In any market when there is a turn from bull to bear the first thing that happens is that the volume goes down. Lower volume shows that there are not as many buyers and means that the sellers will have to get real and reduce prices to move their property in the future - will be interesting to see how the next two quarters go in this space but my money is on down.....
Property prices will get even more sluggish as the fighting builds up a little further down the Gulf and foreign investor nerves become frayed.
Flight of capital from the stock market as the traditional preamble to an issue bubbling under with other types of assets, plus this next quarter is traditionally slow in the property sector.
So expect a physical plunge in Q3 real estate price performance, given all the signs. Also hang on to those overseas property assets, I notice from another report on AB that a developer has just sold off real estate in the US to invest in Dubai.
There is a huge fault line brewing in Iraq and it would be wise to watch how this unfolds rather than wade into the market, perhaps?
@red snappa- there is always a fault line in the ME....the wake up call here will be I hope a gradual adjustment as prices are at present unsustainable and if you scratch the surface people are not selling at the asking price. Tensions in the ME drive people here, that's good for eventual stability and further growth however the question remains how far will that trouble spread.
I take onboard both comments by Chalky & Red Snappa...and would like to add a further dynamic.
There is a very strong argument to be made that Dubai is reliant upon the disruption in the region for its growth, swell in population and the propping up of its Property market.
Take a way the disruption and inflow of cash from Egypt, Lybia, Iraq, Afghanistan, Bahrain, Kuwait, Syria, Jordan & even Iran/Lebenon and Dubai would be a completely different landscape all together.
Is the money here 'parked' longterm or short term? That is the over-riding question...and one people should give credance to when investing here.
How much does this 'parked' money account for inflation in Dubai? 30-40%? who knows exactly...but one thing is for sure...A premium beyond the norm is being paid by the working residents of Dubai to accomodate this 'flight to safety' by the rest of the region.
Is it a good thing or bad thing?...well, that depends wether you are advantaged by it or disadvantaged...
Lack of demand and over supply that's why property prices and property stocks are falling, its not rocket science.
Not so. Try getting a mortgage John; you need a 35% down payment on anything over AED5 million. Explains also why rents continue to rocket notwithstanding the sagging sales market.