Dubai’s residential market peaked in mid-2014 and has subsequently fallen back, with lower levels of sales activity, prices and rents.
Following a period of unsustainable growth (average prices increased by 56 per cent in the 24 months to June 2014), the market has now corrected, with prices falling by around 8 per cent over the past 6 months. We expect prices to fall further over the rest of the year, with a full year decline of around 10 per cent.
There are three main reasons why demand is currently low and prices are falling.
1. Macro economic conditions. The strength of the US dollar has effectively increased the price of housing in Dubai for investors from other currency blocs and has therefore reduced demand from these sources. The recent devaluation of the Chinese yuan is the latest example of this trend but the euro, rupee and Russian rouble have all fallen in value, reducing the attraction of real estate in Dubai for investors from Western Europe, India and Russia.
2. Market conditions. Prices had increased too much and there was widespread recognition that they would soften in 2015. As the market remains heavily dependent upon investors, many of them have held off, recognizing there were limited prospects for making short term capital gains.
3. Regulations. The government introduced a number of measures designed to slow the market and cool demand in 2014 and these measures have certainly played a part in doing just that.
It’s hard to predict when demand will improve, but most likely it will be in 2016 or 2017, depending on broader macro-economic conditions.
The rental market has been more stable than prices, with little change over the past year. There has definitely been a shift of interest from buying to renting and this has helped maintain rentals. We do not expect to see any increase in rentals over the next 12 months, but they may not fall either.
-The writer is head of research (Mena) at commercial real estate agency Jones Lang LaSalle (JLL)
As told to Anjana Kumar
