The average price for completed properties in Dubai decreased from Dh12,357/m² to Dh11,452/m² in the first quarter of 2010, which represents a decrease of 7 per cent, new market study report shows.
The research from real estate consultancy firm Colliers International also says that during Q1 2010 banks remained selective in offering finance, providing it against specific projects, after revising upward the Loan to Value Ratio (LTV) and lowered their interest rates.
“The LTV of leading mortgage providers increased to 75-90 per cent with interest rates varying between 6.5-8.5 per cent. Nevertheless, banks remain selective in offering finance, providing it against specific projects and only to borrowers who can meet the strict lending criteria adopted by most banks,” the report states.
Financial institutions have continued an informal policy of only granting loans against properties that are nearing completion, and the index in Q1 2010 did not register any transactions for properties under construction. New numbers show that 41,000 residential units (both freehold and non-freehold) will enter the market by the end of 2010.
Low demand, high supply puts pressure on prices
Colliers estimates total office space will rise to about 6.4 million square metres by the end of 2011, from about 3.6 million square metres at the end of 2009.
Similarly, real estate services company CB Richard Ellis (CBRE) said it expects 31,194 new homes in 2010, 29,388 in 2011 and 21,870 in 2012, while around 3.42 million square metres of new office space will enter the market between 2010 and 2012, from 4.7 million square metres now.
Most of this supply will be positioned in the low to mid income segment of the market. Consequently, demand is not expected to match the growth in supply, creating downward pressure on property prices.
“Increased supply from the residential sector will see a further drop in lease rates. However, the effect would be higher on villas than apartments,” the CB report stated.
The sentiments were echoed by the Director Research & Advisory Services at Landmark Properties Jesse Downs in an earlier interview with Alrroya.com, where she observed that - based on transactional data - the local markets are not recovering.
“Historically and today, mortgaged property transactions still constitute 20 per cent of total transactions. In fact, in the current market it is often lower than this,” she said, adding, “currently yields are low as rents decline faster than sale prices, which is limiting residential sales. End-user demand is limited by mortgage constraints – this refers to both availability and affordability of mortgages. For offices, the lease and sales rates will continue to decline as the market oversupply increases.”
Community projects showing signs of stability
Residential rents in Dubai are set to fall further in 2010 due to increased supply, while vacancy rates in Abu Dhabi’s office market are expected to rise to as much as 10 per cent in 2011, CBRE predicts.
“Increased supply from the residential sector will see a further drop in lease rates. However, the effect would be higher on villas than apartments,” it said in the report.
The Colliers International study said that projects that offer the community feel are more demanded and, therefore, are showing greater signs of stability. These include areas like Business Bay, for commercial leases and residential purpose-built areas like villa communities at The Meadows, The Greens and Arabian Ranches.
“Projects that offer the community feel are more demanded and, therefore, are showing greater signs of stability,” it states.
Elsewhere in Abu Dhabi, around 390,000 square metres of Grade A office market stock is expected to hit the market by 2011, the report said, adding that vacancy rates are seen between 8 and 10 per cent in 2011, up from 2 per cent in 2009.
Office rental rates in the first quarter were 52 per cent lower than their peaks in the third quarter of 2008, CBRE shows.
“Whether the market has reached the bottom already or is gearing towards stability is yet to be seen,” the report said.
Consider also reading:
Dubai’s plunging office lease rates ‘bode well for market’
Property market set to attain demand-supply balance
Dubai property market turnaround likely in 2011
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