Dubai realty needs stability
While asking prices for the purchase of freehold homes have cooled down since last year, rentals still seem to be skyrocketing. However, such increases in prices can cause an imbalance in the economy and experts across the Emirates have been stressing the importance of taking preventive steps.
Current asking values for ready property are now back to what they were late last year and just before the Expo 2020 win premium took hold of them. "Between August to December last year, property values were up 10-12% and in January, there was a sudden 10-15% hike in what owners were demanding (for completed freehold homes)," said Chandrakant Whabi, CEO of Acrohouse Properties.
Clearly, buyers are showing an innate resistance to what they perceive as too high a premium. Mortgage caps have also affected demand patterns since potential buyers are now expected to put up a mandatory 25% to buy property.
However, by the looks of things, bringing stability in rental growth rates could take more time.
"Rental values will only cool off when supply needs are being met, particularly in the mid-income category where rents have shot up the highest (34% on a year-to-year basis versus 23% on a city-wide basis)," says Sameer Lakhani, managing director, Global Capital Partners.
The problem lies in the impact continuous growth could have on the market. In fact, the UAE Central Bank has issued its strongest warning to date about the property market overheating.
The market rebounded last year as the economy turned a corner amid increased government spending on infrastructure and a revival of trade and tourism. In the past year, bankers including Tirad Al Mahmoud, chief executive of Abu Dhabi Islamic Bank, have raised concerns that rising property prices will increase business costs and make the UAE less competitive.
The Central Bank says the surge in prices is being fuelled largely by cash investors, unlike in the run-up to the 2008 financial crisis, when banks who provided credit for purchases were exposed to a market crash. It said that "analyses of banking data support the hypothesis that the current market recovery is mostly driven by equity buyers and/or reliance on external funding sources."
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. While there has been increased concern from all those operating in the sector, it has become quite apparent that Dubai's growth this time around is different than the 2008 crash. However, it is also clear that more measures need to be implemented to prevent the market from overheating and we are bound to see more announcements come through this year. For all those concerned as to what the future might hold, be sure to follow our weekly updates to get a rundown of the latest.