The Dubai real estate market is slowing down, with a 22 percent fall in the total value of property transactions during July and August compared to the same months last year, according to analysts CBRE.
Average rents also have fallen by 1 percent since July 1, ending 10 consecutive quarters of growth.
The downturn has been caused by an increase in newly completed residential stock and a quieter holiday period during summer, CBRE said in a report published on the opening day of the Cityscape property exhibition.
During July and August, 2,525 freehold residential transactions worth a total AED5.17 billion ($1.4 billion) were completed, a significant decline compared to AED6.67 billion during the same period last year.
New data from Knight Frank also shows the total amount invested in the emirate’s property market during the first half of the year was down. About AED50 billion was spent, equivalent to only 44 percent of the 2013 total.
CBRE said the majority of property transactions were in Dubai’s prime residential areas of Dubai Marina, Downtown Dubai, Emirates Living and The Palm Jumeirah, where a total of AED3.05 billion - representing 59 percent of total residential investment – was spent.
Emirates Living attracted the highest volume of investment, with AED971m (19 percent of the total value), followed by Dubai Marina, with AED879m (17 percent), Palm Jumeirah (12 percent) and Downtown Dubai (11 percent).
Knight Frank said the recent introduction of higher transfer fees and a mortgage cap had caused the market to slowdown.
Price growth had particularly hit Dubai’s luxury home market; prices rose a modest 6.3 percent in the second quarter, compared to 24 percent in the mainstream segment.
There are multiple reasons why the mainstream market continues to perform better, the Knight Frank report said.
“First, established, mainstream locations such as Dubai Marina remain popular among western expatriates and continue to see healthy demand and thus price growth,” the report said.
“Moreover, newer developments such as Jumeriah Village, Dubai Sports City and Dubai Silicon Oasis are seeing the same, albeit prices here are rising off a much lower base. Thus, with demand for residential property remaining strong in both newer, as well as more established mainstream locations in Dubai, prices in this segment continue to post strong gains.
“Second, the new mortgage rules implemented by the UAE Central Bank are stricter for those buying residential property worth over AED5m. For example, if a first-time, expatriate buyer was to purchase a property above that value, they would need to raise a 35 percent deposit. By comparison, the same buyer looking for a property worth less than that amount would need a down payment of 25 percent.
“Third, after halving between 2008 and 2010, both mainstream and luxury home prices have since largely reversed their previous falls. However, rents in the latter segment haven’t kept pace, which unsurprisingly has led yields to harden. By comparison, as a result of a stronger recovery in rents, mainstream yields continue to look relatively attractive to investors.”For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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