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Domestic Demand to Keep Property Market Resilient

The oversupply of housing units in Dubai will be greater at the upper end of the market during 2010 as the emirate’s residential developments dominate by luxury properties, the survey said.

The luxury housing segment is likely to witness more surplus units compared to affordable segments during the year, according to GRMC Advisory Services — a provider of research and business advisory in the Gulf countries.

There will be a surplus of four housing units for each household earning above Dh15,000 per month and looking to relocate in 2010. Further down the market there will be a surplus of one and a half housing units for each household earning below Dh15,000 per month and looking to relocate in 2010, the study said. “The fact that Dubai’s residential developments have been dominated by luxury properties is a key factor determining how the market will evolve,” the advisory firm said.

The survey asked respondents how optimistic they were regarding their financial circumstances and the results show the majority are ‘neutral’ or ‘optimistic,’ with the average indicating a ‘mild optimism.’ This optimism shows up in future real estate preferences as well.

Around 12 per cent of the respondents expressed interest in renting or purchasing a new property during 2010; 83 per cent of these respondents were interested in renting rather than purchasing a new property. In the current circumstances the unavailability of credit and uncertainty over future prices are key inhibitors among potential purchasers.

GRMC also used the survey results to form demand assumptions in a model of supply and demand in Dubai’s residential real estate market. The outcome showed that the current abundance of luxury grade property distorts the market so the future holds greater oversupply of units at the upper end of the market.

The survey also examined how optimistic respondents are regarding Dubai’s economic prospects and whether they plan on moving or purchasing residential property in 2010.

The results indicate that 68 per cent of the emirate’s population households feel they have been negatively impacted by the financial crisis.

However, households that have actually suffered a reduction in income are a minority; 58 per cent of the sample reported their income remains the same and 7 per cent cited that it had increased.

Of those who said they had been negatively impacted, 51 per cent reported their income had decreased and the impact was observed to be greater in lower income groups. Respondents who had suffered a decrease in income saw an average 16 per cent reduction in household income over 2009, during which 9 per cent of this group also changed their residence.

The motivations for changing their residence were, however, generally positive; only 42 per cent reported they were motivated by affordability and the remainder moved to larger, higher quality or better-located units despite their reduction in income.

This makes economic sense if people are confident that income and jobs are secure; given that rental rates and selling prices have come down significantly more than income, property has become more affordable in relative terms leading them to feel secure in their decision to upgrade.

· abdulbasit@khaleejtimes.com