Residential property prices in Dubai dropped 8 per cent in the fourth quarter of last year, the first quarterly decline since foreign ownership became legal in 2002, according to Colliers International. "Tighter liquidity, more selective lending and growing negative sentiment are all bringing about these changes," said Ian Albert, the consultancy's regional director.
According to its fourth-quarter House Price Index (HPI) released today, the average price of 14 developments was Dh1,770 (US$481) per square foot, down from Dh1,919 per sq ft in the third quarter. Over last year, prices rose by about 59 per cent. The report said numbers of sales dropped 45 per cent in the last quarter, providing fresh evidence of the global credit crunch hitting the nation. Companies facing tough times are cutting staff and sending expatriate workers home. With the departures, demand for Dubai properties has eased.
"The main issue is that property is an illiquid asset. It is generally held for a longer term, not as an asset to be traded on a short-term basis. What we have seen is unsustainable growth quarter-on-quarter last year, properties being traded almost like stocks and shares." Still, for buyers with access to cash and credit, the lower prices mean bargains abound. "There is a great selection of available property at a price that a buyer would never have expected," said Vincent Eston, the head of sales at Dubai-based Sherwoods.
Despite the average growth rate in Dubai for last year standing at 6 per cent, fourth-quarter apartment sales prices dipped across the emirate, with the Downtown Burj Dubai area the worst hit, according to the property consultancy, Asteco. Average growth rate is derived by calculating the average of the quarter-on-quarter percentage changes for the year. The Asteco report also found that the property market in Dubai was shifting to an end-user market, and calculated what an investor could buy for Dh2.5 million. It found that one-bedroom apartments under Dh2.5m were available in all of the projects it surveyed, with the exception of the Dubai International Finance Centre (DIFC), predominantly a business-oriented development with few residential units that carry high price tags.
Two-bedroom units are available in the low-to-medium segment and are priced at about Dh1.7m. There are no villas available for under Dh2.5m, but smaller townhouses in the Springs area fall under this price bracket. In its report, Colliers said the average fourth-quarter price level was now similar to that at the beginning of the second quarter of last year. Brokers say evidence from the market suggests the price declines have been even more steep, sometimes as much as 50 per cent, especially in developments popular among speculators such as Burj Dubai Downtown.
The Colliers quarterly report is based on data provided by five mortgage lenders that represent 60 per cent of the Dubai market. "Everyone in the market was expecting the average decline to be greater. But [our index] is statistically based on transactional evidence, not what brokers are saying," Mr Albert said. Apartments saw the strongest quarterly decline, down an average of 11 per cent from the third quarter last year. This was due particularly to price reductions in Jumeirah Beach Residence, Downtown Burj Dubai and Palm Jumeirah.
"There is a larger number of apartments out there and a greater range, which includes everything from [expensive] penthouses in Dubai Marina to studios in International City. Villas, in comparison, run between a certain price range," Mr Albert said. Villa prices fell 3 per cent to Dh1,607 per sq ft in the fourth quarter, largely because of lower price levels in Jumeirah Park and Arabian Ranches. Townhouses, though, went against the trend, with prices rising by 1 per cent.
Much of this increase could be linked to the Jumeirah Village development, Mr Albert said. "As the market matures, it moves from a speculative market into an end-user market. Although [the Jumeriah Village] property was under construction, it is very near to completion. As a property is complete, there is generally a price spike. That really shows the shift in the market." In fact, the average rate for completed projects dropped by 5 per cent to Dh1,821 per sq ft in comparison to a 10 per cent drop to Dh1,702 per sq ft for projects still under construction.
"Completed projects represent indeed a more secure option for mortgage providers and are less attractive to speculators," the report stated. Colliers also reported that prices differed according to whether Downtown Burj Dubai prices were included or not. When it was included, completed property prices fell by an average of 5 per cent to Dh1,807 per sq ft and uncompleted properties by 10.4 per cent to Dh1,702. When it was excluded, completed properties fell by only 1.6 per cent and uncompleted projects actually rose by an average 5.7 per cent - but only to a level of Dh1,568 per sq ft.
The Colliers director said that he expected the weaker players in the property sector to fall away, as deep resources and product quality became most important to buyers. "You will see a shake-up of the industry as a whole," Mr Albert said. @Email:email@example.com