Why has the market declined in 2015?
The most significant reason is the decline in the oil prices and the consequences this decline has on consumers income, expenses and willingness to spend.
Geopolitical risk is also a very significant reason for the property prices decline. People on-the-move and international investors don’t perceive the region as safe enough to place their assets.
Lack of momentum is another significant reason. Dubai’s real estate market advanced until the fourth quarter of 2013 on the back of the Expo 2020 win expectations. Once the Dubai was awarded the right to host the event, the momentum has handed. At present, there is no other so significant and building up momentum to encourage investors’ return to the market.
Another discouraging factor for investors is the implementation of regulations and measures by the Dubai government after 2008 to prevent another bubble and major correction. Loan to value rates was decreased to 65 percent for purchases over Dh5 million, meaning buyers need to have over a third of the property’s value in cash to buy a property. Off-plan buyers are asked to pay an additional registration fee of 4 percent of the contract value at the time of booking and increased transfer fees of 4 percent, up from 2 percent previously when buying from a developer, were also enacted around the same time, which has added to the cooling measures.
Are rents and prices going to decline further?
In theory, rental prices should fall in parallel with a decline in the purchase price. However, figures over the last 18 months show there has been little effect on rental prices.
One of the major factors to take into consideration is that while many tenants might start looking for new rental properties, once they realise the hidden costs of moving outweigh any potential savings, they’re not moving. Many tenants also manage to negotiate discounts with their landlords. As a result, the majority of rentals are being renewed and this keeps prices relatively stable, especially in well developed areas. There are fewer newcomers to Dubai than in the past years and their accommodation allowances or housing budgets are rather modest at present.
The majority of Dubai’s residential communities have registered declines in rental values. Moreover, rents will most probably continue to decline in 2016 along the property prices as new supply of apartments and villas is being released.
When it comes to the number of vacant properties, most landlords in Dubai are not constrained by financial obligations and would rather see their property sit empty than let them fall below their own perceived market value. Such situation may continue for many months until owner eventually realize that it is better to reduce the rent and just to the market conditions. Also, many owners withdraw their properties from the market as the cycle is not favourable for sales.
In general, if the region will no longer rely on oil revenues and generous government spending, Dubai’s real estate market will resemble more and more any other mature real estate market of any city with a similar size and population. There will be less real estate transactions and less real estate agents.