Property brokers are warning that villa prices in Dubai could be starting to fall as new mortgage caps subdue the market for multi-million-dirham homes and as hundreds of new family houses are built across the city.
They say that new laws, which came into effect at the end of December, are making many potential buyers think again, subduing prices for villas in the city at a time when scores more are being built.
According to research from the property consultancy Phidar Advisory, prices for single-family homes in Dubai rose steadily over the first half of the year, but provisional figures for the six weeks to August 15 showed that they fell 4 per cent.
“The Dubai residential price correction now under way is a sign of early detection relative to the last cycle,” said Jesse Downs, the Phidar Advisory managing director.
“[We] predict prices will decline in the second half of 2014 but this should be considered a price correction in response to exuberant speculation building over the past two years combined with contractionary monetary policy,” Ms Downs added.
Others say that while price growth for villas is cooling, there has been no sign of actual decreases in prime residential areas.
According to data from Phidar and the real estate information company Reidin, Dubai’s villa market, the first segment of the housing market to recover after the global financial crisis, has gone through a steady decline in the volume of sales from more than 200 a month last November to fewer than 100 a month by the end of July.
“The federal mortgage caps have had a notable impact on the volume of villa deals, with the upper end of the villa market being most affected,” said Faisal Durrani, an international research and business development manager at Cluttons.
“The mortgage caps have driven up the size of deposits needed to secure homes, and for those households looking to step on to the property ladder, the dream of acquiring a large villa now means that they are likely to have to save for longer before they can transition from rented accommodation. We are certainly seeing that reflected in the figures coming through,” he added.
Until the Central Bank introduced the new rules, commercial banks were not required to set any limits on mortgages. The new law caps home loans at between 60 per cent and 80 per cent of a property’s value for existing properties and 50 per cent for off-plan sales.
“Although there has been little change at the super-prime end of the market, we have noticed that there has definitely been a slowdown in the number of sales transactions for regular family villas,” said Gregory Lewis, a senior negotiator at Knight Frank. “The new mortgage cap rules mean that many investors either can’t or won’t put down the sort of deposits now required on large villas.”
Mr Lewis disagreed, however, with the belief that overall villa prices in Dubai were falling, pointing out that prices for large family homes in established areas were holding firm, while developers built smaller, cheaper homes in less-established locations to cater to the change in demand.
“I think developers are anticipating buyers’ demands and launching cheaper products,” he said. “Where someone might have spent Dh6 million or Dh7m on a villa in the past, now he’d be more likely to pay about Dh3.5m.”
The news comes as developers are pressing ahead with plans to build scores of villas and town houses on the outskirts of Dubai.
Last week the developer Akoya announced that it was marketing a second tranche of villas at its vast Akoya golf course complex in Dubailand, with prices for four-bedroom villas starting at Dh2.25m. Similarly, the business park developer Tecom announced last week that it would be selling its Villa Lantana development of three-, four- and five-bedroom detached and semi-detached homes close to its DuBiotech business park in Al Barsha South in September, with prices starting at Dh2.3m. Prices for town houses at Dreamz by Danube in Al Furjan area start at Dh2.5m for a 2,500-square-foot town house.
With hundreds more villas set to come onto the market over the coming years on the outskirts of the city in areas such as Dubailand, Mohammed bin Rashid City and Jumeirah Park, property experts are warning of a potential oversupply.
“As yet we haven’t seen a proper slowdown in the villa market. However, the villa supply for the next three or four years is likely to be significantly higher than that seen in the past,” said Matthew Green, the head of research for CBRE’s Dubai office.
“Over the ten-year average we have seen apartments make up perhaps 90 per cent of the market and villas the other 10 per cent. Over the next five years that is likely to change to perhaps an 80/20 split. How that will impact on prices depends on location, and projects in secondary locations are likely to suffer first and there are a lot of new villas scheduled to be built in the new areas.”
Craig Plumb, the head of research at JLL’s Dubai office, agrees.
“There have been a couple of reports of villa prices falling but I’m not sure that they really are at the moment,” he said. “So far we haven’t seen any signs of actual achieved prices per square foot dropping when you compare like with like. However, we could well see some falls in the achieved prices for villas coming through in the figures next year if these trends continue.”
lbarnard@thenational.ae
Follow The National's Business section on Twitter
