Latest real estate data shows how new mortgage cap is affecting Dubai

The villa market in Dubai is slowing at a quicker pace than apartments, leaving prices 4.3% down on a year ago in the first quarter of 2015, new research shows.

Overall listing prices in the emirate fell by 0.3% in the third quarter of 2014 and by 0.5% in the final quarter, leaving the total increase in average prices last year at 3.4%, considerably down on the record 51% rise recorded in 2103.

The data from the latest residential market outlook report from Cluttons also shows that villa values fell 1.2% in the third quarter of 2014, then 0.9% in the fourth quarter and 1.5% in the first quarter of 2015.

The analysis in the report suggests that the Federal Mortgage Cap that was introduced just over a year ago to cool the market is now having an effect. ‘The impact on the villa market has been particularly pronounced,’ the report says.

It has also affected sales. The data shows that during 2014 just 1,300 villas were sold, down 52% on 2013 and the number of transactions in the first three months of 2015 was down 36% on the same quarter in 2014.

The mortgage cap means that the deposit needed for the purchase of an AED5.5 million villa has increased from 20% to 42% and a growth in rents over the last 18 months means those looking to buy face a challenge saving for a deposit.

The report says that a strengthening supply line means that villa prices are likely to fall further. ‘During 2015 alone we expect a further 4,000 villas to be delivered to the market, followed by 6,000 in 2016 and an additional 3.700 in 2017,’ the report says.

‘The step change in the rate of villa deliveries will be met with a financing landscape that is vastly different to when some of these schemes were conceived. The secondary market in particular will be hardest hit by the rising supply,’ it adds.

The report also points out that villa sellers in the secondary market are now very much on the back foot and there are substantive price declines due to a rise in distressed sellers.

‘While villa prices are expected to continue slipping by 2% to 4% per quarter over the second half of the year, apartments, which have shown more resilience, are also expected to weaken by between 0.5% and 1% each quarter this year,’ the report explains.

‘Despite this sluggish outlook, demand is expected to remain very stable in the medium to long term, particularly as the government continues to drive economic diversification, which will fuel job creation,’ it adds.

The residential rental market has also continued to soften. In the fourth quarter of 2014 rents fell by 1.9%, leaving the total rental value growth last year at a marginal 0.4%. But the report points out that this has been negated by a 0.4% dip in average rents during the first quarter of 2015 which leaves rents 1.5% lower than this time last year.

Both apartments and villas saw rents fall, down 0.3% and 0.5% respectively, during the first three months of the year. At the same time, supply is edging up and landlords face the prospect of longer void periods.

Some 12,600 units are expected to come onto the market by the end of next year and a further 15,800 completions scheduled between 2017 and 2018 but Cluttons says that the risk of an oversupply appears

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Source: Property News Spain