Dubai Property prices forecast to Fall until Q4

[financier888]

Dubai property prices forecast to fall until Q409 - report - Real Estate - ArabianBusiness.com

Dubai property prices forecast to fall until Q409 -
report
by Soren Billing

Monday, 04 May 2009

PRICE FALLS: Dubai's real estate market will continue to see prices drop until last quarter of year. (Getty Images)Property prices will continue to fall until the fourth quarter in Dubai's most popular neighbourhoods, Landmark Advisory said on Monday.

The price of an apartment fell 23 percent, while the price of a villa fell 32 percent in the first quarter - bringing them down to levels similar to the fourth quarter of 2007, but volumes remained low, the broker said.

However, the number of transactions in the first quarter was skewed towards the upper end of the market, and after creating an equally weighted sample of both medium and high end transactions, the average price of an apartment fell 29 percent, while villas were down 39 percent.



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Landmark estimates that 24,000 new units will hit the Dubai market this year, adding that the vacancies caused by expats leaving the city could lead to a surplus of 30,000 to 52,000 units.

It expects price floors to start emerging in the fourth quarter this year.

Lower rents were also removing the incentive for people to share apartments and prompting more people to commute to Abu Dhabi from Dubai, the firm said in its Q2 Dubai and Abu Dhabi residential real estate report.

Relocation within Dubai primarily involves residents in low cost areas like International City and Discovery Gardens moving to premium areas like Dubai Marina.

Rents fell between nine and 41 percent, depending on the area.

Dubai Marina was the most popular area for leasing, accounting for 30 percent of all new annual lease contracts in the city.

One of the most significant changes in the quarter was a dramatic fall in listing volumes, indicating that potential sellers are holding on to their properties until prices recover, amid discounts of up to 50 percent, Landmark said.

Abu Dhabi’s primary off plan remained frozen, while secondary prices accelerated their decline in the first quarter.

The price of an apartment in the capital fell 15 to 20 percent while a villa declined 25 to 30 percent in value, but prices began to stabilise towards the end of the quarter.

The Abu Dhabi market will remain undersupplied even if the population only grows by around two percent this year, compared with a six percent estimate under the Abu Dhabi 2030 plan.

Still, Abu Dhabi developers that launched projects at or above AED2,000 per sq ft will have to reconsider their pricing structure, Landmark warned.

Discounts will be necessary not only to sell the remaining inventory but also to prevent defaults by buyers who have only paid 20 percent and now have an incentive to walk away, it said.

Landmark Advisory is the research division of Landmark Properties.

 

[cascades]

well dont know if property prices will rise or fall. but properties will become worthless thanks to idiotic laws, unscruplous developers, maintainance, rera, law. for people who think dubai is a tax heaven - advice is paying the tax is cheaper and wiser.

 

[jeffslaw]

well dont know if property prices will rise or fall. but properties will become worthless thanks to idiotic laws, unscruplous developers, maintainance, rera, law. for people who think dubai is a tax heaven - advice is paying the tax is cheaper and wiser.

Couldn't agree more - except that prices must continue to fall whilst demand is virtually non-existent and supply grows apace with many offplan developments remaining stagnant and with no building occurring. There are too many apartments and houses for sale or being repossessed and their number continues to swell, and no one interested in buying them. Some developers still have their prices up there in 2007/8 when 2004/5 levels will eventually be attained. Rentals are also slowly coming down as greedy landowners finally wake up to the fact that their demands are wholly unrealistic and the numbers of new potential tenants is dwindling day by day. Until 2006 I rented a good two bedroom two bathroom flat on Sheikh Zayed Road for under 60,000 AED. I had access to a very nice communal pool. That was reasonable and it is the sort of level such properties should be offering today.

 

[Dod]

I also think 60K for 2 bed in SZR is about right as a fair rent. When I paid that for a very nice 2 bed unit there in 2003 I thought it was expensive and I couldn't believe the lunatics paying 150K for the big villas in Jumeira, which was top of the market at the time.

Recent buyers (in similar properties in the new development areas) won't like to hear it because it won't cover their mortgages. But I think the rental market was going to drop back even without the global crash because companies would eventually realise that Dubai was not as comparatively cost efficient for their overheads as they thought, and their bottom lines would start to hurt. Thus demand would have eased as Dubai lost out to other locations.

So many companies had commited themselves to setting up here that they were forced to accept the ever more ridiculous rents (commercial and residential) at least for a while.

Dubai has a raison d'etre: international trading hub (with tourism as a bonus),but a high price level would hold it back

 

[jeffslaw]

I also think 60K for 2 bed in SZR is about right as a fair rent. When I paid that for a very nice 2 bed unit there in 2003 I thought it was expensive and I couldn't believe the lunatics paying 150K for the big villas in Jumeira, which was top of the market at the time.

Quite right Dod. Dubai can make a comebacl albeit slowly but it must both recognise the slamdunk effect of the credit crunch and also compete with other jurisdictions on price. Returning to 2003-4 levels would bring back the doubting Thomases and the investors. You might also see a recovery in employment levels at an historic low now.

 

[financier888]

doha?

I also think 60K for 2 bed in SZR is about right as a fair rent. When I paid that for a very nice 2 bed unit there in 2003 I thought it was expensive and I couldn't believe the lunatics paying 150K for the big villas in Jumeira, which was top of the market at the time.

Recent buyers (in similar properties in the new development areas) won't like to hear it because it won't cover their mortgages. But I think the rental market was going to drop back even without the global crash because companies would eventually realise that Dubai was not as comparatively cost efficient for their overheads as they thought, and their bottom lines would start to hurt. Thus demand would have eased as Dubai lost out to other locations.

So many companies had commited themselves to setting up here that they were forced to accept the ever more ridiculous rents (commercial and residential) at least for a while.

Dubai has a raison d'etre: international trading hub (with tourism as a bonus),but a high price level would hold it back

I completely agree - the market is not even close to bottoming out yet - when it doesn't quickly rebound after Cityscape this Oct - reality will set in. At the MEMEX show last year I met with some directors from a large MNC from the USA - when they saw the figures of what it would cost them to keep a rep office here - they were amazed! simply prohibitive! They just appointed a local rep already operating here - the costs were way off the charts, especially compared to other areas in Asia.

Most the demand here was generated from the real estate industry and the service industries that supported them - that business has dried-up and companies are closing or scaling down big time - and tourism is affected. Because people are seeing footfalls in the malls - doesn't equate to sales - besides - where else you going to go in Dubai? especially in the summer??? Tourism is down all over with far better deals for your $$ being available in other countries.

A lot of things have to happen to start to attract businesses and families back to Dubai - it will take several years. The visa issue is critical - for the end users - which Dubai desperately needs.

I wouldn't be surprised if you see Doha making a big jump and start attracting people and businesses that would have otherwise considered Dubai

PS - I am not a broker promoting Doha !! just to let you know!!

 

[mmike]

Thank you for the very informative post, Financier888. I found the info very interesting.