Dubai - Sales prices will dip 5 to 8% while rents may drop by a marginal 3% this year, says JLL
Published: Tue 26 Jan 2016, 1:19 PM
Last updated: Wed 27 Jan 2016, 1:02 AM
Dubai's economy relies on oil by less than five per cent. Yet, low crude prices are weighing on property investors' sentiments and is among a multitude of factors that caused residential sales prices in Dubai to dip 12 per cent in 2015.
Companies in Dubai also have business interests in oil-reliant economies such as Saudi Arabia, which has initiated spending cuts. This is resulting in a ripple effect on these businesses.
A stronger US dollar, geopolitical tensions, rising interest rates, slowing growth in China and impending taxes are other factors weighing on demand for Dubai properties. The local population's purchasing power has also been hit owing to high inflation.
"We are estimating upto a five to eight per cent drop in Dubai residential sales prices through 2016. We expect another growth cycle in 2017 in the run-up to Expo 2020," says Dana Salbak, research manager, Mena at JLL.
Since rents have traditionally lagged sales prices, JLL estimates that rental prices in Dubai will dip marginally by three per cent in 2016.
"If you look at the fundamentals of Dubai in terms of job growth, GDP growth, yes they have slowed down, but the numbers are still quite healthy. There is still demand from people for rental properties. Job growth is still quite sustainable, leaving aside the oil and gas industry," explains Salbak.
"Secondary locations such as Discovery Gardens and International City saw more volatility in terms of rents and sales prices at the end of 2013, as opposed to Dubai Marina or Downtown. It's these same secondary locations that are seeing rent drops now," she adds.
Project delays
An amplified forecast of unit supply was a contentious issue in 2015, with developers taking on consultancies for projecting exaggerated figures. For instance, JLL had forecast at the beginning of 2015 that 25,000 homes would be delivered in Dubai while in reality, only 8,000 units were handed over.
"Over the past five years, the materialisation rate of proposed projects has been relatively low, with only 30 per cent for residential projects. We estimate that around 22,000 residential units will be delivered in Dubai in 2016," says Craig Plumb, head of research, JLL Mena. This equates to around 6,600 units that will be actually delivered.
Reasons for project delays include financing issues, contractual disputes, construction delays and licensing/approval delays, while some developers will deliberately hold back completions to avoid flooding the market.
"Developers always overpromise how much they are going to deliver. The fact that only 8,000 units were delivered in 2015 is quite healthy since it is growing in line with the population," Dalbak adds.
The UAE property market will be characterised by tightening liquidity in 2016 as the government and banks feel the pinch of low oil prices. Conventional financing such as bank lending or IPOs will become more difficult, and developers will have to look for alternative funding mechanisms such as joint ventures and public private partnerships.
"Banks are becoming more cautious. International bond markets are nervous and exercising caution towards Middle Eastern investors," says Plumb.
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