Dubai home prices are set for another year of decline with supply outstripping demand even as developers delay the completion of properties, according to real estate adviser CBRE Group Inc, reports Bloomberg.
“We expect to see a slight decline in values, which is in line with the drop in 2016,” said Nick Maclean, CBRE Group Inc.’s managing director for the Middle East. CBRE estimated apartment prices fell 4.6 percent on average last year, while single-family homes slid 6.5 percent. Rents also dropped about 4 percent.
Residential values in Dubai have been declining since the second quarter of 2014 as weak job growth and ballooning supply drives values and rents lower. Transactions by value dropped about 20 percent last year compared with 2015 as the city’s traditional investors from the Persian Gulf, Russia and the U.K. were hit by lower oil revenue and by the decline of their local currencies against the U.S. dollar to which the United Arab Emirates dirham is pegged.
Officially around 70,000 homes are set for completion before the end of 2019. But only about two thirds of those will actually be delivered to buyers in that time frame because many developers are delaying construction to restrict supply hitting the market, CBRE’s Maclean said.
That should help cushion the declines along with stronger local demand. Property purchases financed through mortgages now make up around 48 percent of the total compared with about 25 percent three years ago, he said.
“The owner occupiers, those who want to put roots here, are a much stronger component of the market now,’’ he said.
Dubai, which built the world’s tallest tower and man-made islands, experienced one of the world’s worst property crashes in 2008 as speculative buyers flipped properties many times before they were even built. Since then, the government has doubled transaction fees to 4 percent and the U.A.E.’s central banks limited mortgages to encourage buyers to invest in properties through savings.
Pressure this year won’t be limited to the housing market in Dubai. Hotels are likely to experience further decline of room revenue due to rising supply and dollar strength, which makes Dubai more expensive to Russian and European visitors, CBRE said. Retailers are also expected to face challenges, it said.