House prices in emirate still tumbling with no signs of market recovery, says Deutsche Bank
Dubai property prices continue to fall and political
instability in the Middle East failed to give the market an expected boost,
Deutsche Bank said.
Home values declined 1.2 percent in May compared with the
previous month and rents fell by 1 percent, analysts Nabil Ahmed and Athmane
Benzerroug wrote in a note to investors. Apartment prices slid 1.3 percent in
May, while villas declined 1 percent.
“Despite talks of renewed interest in real estate following
regional unrest, there is no visible sign of an improvement,” the analysts
wrote. “Even if we believe the worst of the downtrend is now behind, new
supply, lack of homebuyers’ appetite and anemic transaction activity point to
Property prices in Dubai, the second largest of the United
Arab Emirates’s seven sheikhdoms, have dropped 64 percent from their peak in
mid-2008, while rents have fallen 55 percent, according to Deutsche Bank.
Revolutions that swept the Middle East and led to the
overthrow of regimes in Egypt and Tunisia prompted speculation that investors
would look at Dubai as a safe haven.
Asking prices dropped all over Dubai with the exception of
apartments in Palm Jumeirah, Jumeirah Beach Residence and Sports City and
villas in Emirates Living, Palm Jumeirah.
Prices fell 2 percent in Jumeirah Lake Towers, The Greens
and Arabian Ranches.
Rental yields were 7.6 percent in May, unchanged from a
month earlier and up from 7 percent a year ago, according to the report.
“Although the pace of decline has slowed of late, prices
have continuously declined for 18 months in a row,” the analysts wrote. “We do
not see an improvement in fundamentals that could trigger a recovery. The
supply overhang looms large, homebuyers lack appetite, transaction volumes
remain anemic, banks are cautious lenders and international investors are still
wary of U.A.E. real estate.”
Deutsche Bank maintained its “buy” recommendation on Emaar
Properties PJSC, the U.A.E.’s biggest developers, saying it has “superior asset
quality, strong recurring income, reasonable leverage and cheap valuation.”
- Avg 1 Year Bank Deposit Rate = 2.00%
- Avg 1 Year Rental Yield = 5.00% (Net of maintenance & other costs)
- Benchmark EIBOR has been dropping continuously as banks are flush with liquidity.
What does it tell you? Risk premium of UAE real estate is high. But the differential is only 3% - 4% over a risk free bank deposit.
- Property yields will fall to match risk free deposits if prices increase.
- Prices will increase if risk perception goes away.
- Risk perception will go away if buyers / end users have some rights / legal framework.
In absence of rights / legal framework, impending supply & expected regulations on mortgage lending, that risk perception will only increase.
What does it tell you? The rental yield has to increase. Assuming rentals remain the same, avg property price has to fall between 10%-15% for every increase of 1% in rental yield.
Thats exactly whats happening. Rental yields have increased from 7% to 7.6% in 1 year.
If Dubai is serious about a turnaround, it should hand out Permanent Residences to all who buy properties here, just like it was promised for so many years.
Well said AW
Unless and until the stalled / non started projects are cancelled and monies paid refunded and promised visa's priovided to home owners, no correction is ever possible in the real estate market - now or ever.
Sajan Bhatia (an affected investor)
Unfortunatelly for Dubai, property prices will continue to slide untill the Strata Laws are reviewed to make sure investors are protected and developers are removed from the dominant and unfair position they are in. RERA has a big role to play in cleaning the market if they want investors to come back. Developers FM companies need to be dismantled and professional companies allowed to operate. Utilitie companies need to review their business models on realistic and long term. OA's must be allowed to run their buildings without any kind of interference from developers. Too much time was wasted and has impacted market credibility.
I think I agree with his opinion, many investors thought of Dubai as their second or even first home and they gathered all their time savings and poured it in hoping to get full residency status as promised.
then came the disappointment one after the other....investors have been hit with the Global Financial Crises and still have not recovered from their loss and another blow concerning residency status.
it was a disappointment for all.
Again and after all the success of Dubai, people don't want to admit their misjudgement of the crisis? What crisis? Dubai ranks the world's 9th highest destination well ahead of New York, Tokyo, Rome and other tier 1 global cities. Expenditure is going on. Real estate prices are very might stable with a slight 10% INCREASE in the last 5 months in prime areas of Dubai such as Lakes, Meadows, Springs, Palm Jumeirah and selected areas Dubai Marina. That's a good part of the Dubai Freehold sector unless if you want to consider projects in the middle of the desert. Rents are still VERY HIGH so are the prices by all global standards. Dubai is a GLOBAl city as reconfirmed by the recent MasterCard global report. and again, as i always say from day 1, whoever doesn't like Dubai or doesn't trust it or doesn't believe in it can simply leave but the biggest truth with the traffic, coming hotels, full restaurants, mega malls, world's # 2 Int'l. busiest airport, and all those real estate agents
Until RERA start regulating developers and start protecting investors nothing will change. The market needs buyers but buyers won't come because all they see is high risk and no protection. Delayed projects with no compensation to all those people who wait with no end in sight, no refunds from cancelled projects, funds disappeared from escrows, developers charging fees to make up in lost sales revenue and RERA doing nothing to stop them, increasing and constantly changing fees to register or transfer, pre-registration, NOC fees, high service charges, developer 'admin' fees and no residence visas. There are far cheaper places with a legal frame work that offers far more protection than dubai does and until that changes investors are looking for low risk elsewhere. All it would take to kick start things would be a starting point as small as forcing developers to stick to timescales and making compensation compulsory for delays, or regulate developers and stop them charging so many fees.
Dubai real estate will never recover.....
It really is a shame to see poor , poor , poor journalism from AB.
"Asking prices dropped all over Dubai with the exception of apartments in Palm Jumeirah, Jumeirah Beach Residence and Sports City and villas in Emirates Living, Palm Jumeirah."
And then read the headline. In these areas we have witnessed price increases.
Secondly , where is the mention of Downtown Burj Khalifa"
If you put downtown in the equation , then you would have to say , " Dubai house prices well on their way to recovery".
Next time , before you quote bloomberg , please ask the people on the ground , before the reputation of AB being anti-Dubai really sticks .