Dubai: Sharp deceleration in home prices unlikely to be start of a sustained fall
With growth of 1% quarter-on-quarter, prime residential prices in Dubai saw relatively weak growth in the first three months of this year. What’s more, our estimates show that the second quarter was equally sluggish.
The slowdown can primarily be attributed to a combination of higher transfer fees and the introduction of mortgage caps – both of which came into effect in the final part of last year. However, the latter appears to have hit the emirate’s residential property market especially hard, not surprising given that broadly around 25-35% of luxury home buyers rely on mortgage finance for purchase.
On a positive note, however, the Central Bank’s Q1 2014 Credit Sentiment suggests that financial institutions intend to loosen their credit standards for both owner occupiers and investors in the short-term. That is good news for the residential market in Dubai as a whole.
Moreover, Dubai’s luxury home prices look relatively low in historical terms, as well as compared to other global cities. In Q1 2014, the price of an average luxury home was 15% below its 2008 levels, with one million US dollars buying approximately 146m2 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.
In addition, Dubai’s real estate buyers remain as diverse as ever. According to the Dubai Land Department, 133 nationalities bought property in the emirate in the first three months of this year, with Emiratis (AED 7bn), Indians (AED 5.9bn), Britons (AED 3.1bn) and Pakistanis (AED 2.4bn) the largest investors.
Finally, 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.