Dubai rents and prime property prices set to fall 10% on average this year

Secondary market of existing properties in the emirate could suffer even larger falls of up to 20 per cent, property agent JLL has predicted.

Dubai apartment prices remained flat for a second consecutive quarter as buyers continued to be put off by the introduction of mortgage caps by the Central Bank and a hike in transfer fees. Razan Alzayani / The National
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Calling the top of the Dubai real estate market yesterday, the property agent JLL predicted that after remaining flat for the past six months, prices and rents in the city will drop this year by an average of 10 per cent.

JLL based its forecast for 2015 on a lack of affordability in the market and the fall in oil prices.

“We’ve reached the peak of prices for residential in Dubai and that’s a good thing. We are at the top of the cycle now and we believe that both prices and rents will decline this year,” said Craig Plumb, the head of research at JLL’s Dubai office.

JLL said that its prediction for price falls was for the average price of new-build properties in the city, while the secondary market of existing properties could suffer even larger falls.

The agent added that properties on the edges of the city were likely to be hardest hit, while those in more prime locations would be less likely to experience any softening in rents or prices.

“What we’re saying is that this 10 per cent fall will be an average,” Mr Plumb said.

“For the new-build market the actual fall is likely to be less than that, while the secondary market will be down by more. For the developers you might not see any change to the actual price, instead you’ll see things like they’ll extend the payment terms or offer rental guarantees or new cars.”

JLL also noted, the strong US dollar, to which the dirham is pegged, is deterring European and Russian buyers from investing in Dubai, JLL noted.

JLL’s forecast for Dubai is broadly similar to the 2015 forecast from the property group CBRE, which said that the arrival of 20,000 new units of housing on the market this year “could have a deflationary impact on sales and rental rates.”

CBRE likewise said that prime areas, such as Dubai Marina, were less vulnerable than secondary areas such as Dubailand.

Prices had risen too high, Mr Plumb said. “House prices rose 56 per cent in the two years to June 2014 and Dubai was pricing itself out and becoming too expensive to live and to work here,” he said.

Earlier this month JLL reported that average villa prices in Dubai had dropped 1 per cent during the final three months of 2014 and apartment prices remained flat for a second consecutive quarter as buyers continued to be put off by the introduction of mortgage caps by the Central Bank and a hike in transfer fees.

The news came as the Dubai Land Department reported that the total volume of real estate deals in the city fell 15 per cent in 2014 compared with the previous year. “Falls will be by up to 10 per cent of transacted prices rather than asking prices,” Mr Plumb noted.

“So you are likely to see falls that amount to more than that because if you took that as the baseline achieved price then the discount on the asking price could be anything up to 20 per cent because there is always an inflated element between the seller’s expectations and the market.

"Prices and rents for properties in locations such as Downtown and Dubai Marina and in the more prime central locations are likely to hold up better," he said. "But in newly emerging locations such as Jumeirah Village Triangle and Jumeirah Village Circle or further out in Dubailand you could see bigger falls."

JLL predicted that in Abu Dhabi house prices would remain stable or fall slightly, while rents would continue to increase at a single-digit rate.

Earlier this week, MPM, the residential property arm of Abu Dhabi Islamic Bank, predicted that the capital’s rents would rise this year, but more slowly than in 2014, and sales prices would be flat or fall by up to 5 per cent.

lbarnard@thenational.ae

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