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Adam Wisher is head of Development Advisory and Research at Cavendish Maxwell, a firm of chartered surveyors and property consultants. The firm recently released a residential market report which draws from their Property Monitor service, a real-time source of sale and rental transactional data covering the UAE. Adam talks about the current Dubai residential market, in comparison with 2008, transparency and market trends.

May 2015

The lower transaction volumes during the second half of 2014 created a downward pressure on prices that led to reductions in Q1 2015 as sellers began to lower their expectations to get deals done. The Property Monitor recorded villas dropping by an average of 3% and apartments by 2% during this period. The average price at the end of Q1 stood at AED 1,344 per sq ft, representing a 5.1% market wide decline in the preceding nine months from what looks to be the peak in Q2 2014.Timeline4

The extent of this trend is not a one-size-fits-all generalisation with established locations – Business Bay, Dubai Marina & parts of Downtown – showing the most resilience. Secondary apartment locations such as International City and end-user villa communities have been hit the hardest with year-on-year drops of up to 11%.

Despite these declines, there is still appetite in the off-plan market with several successful launches of product in secondary locations such as Dubai Sports City, Dubai Silicon Oasis and Dubailand. Developers in these locations have, however, had to offer very flexible payment plans alongside developer track record and marketing exposure to drive absorption.

This appetite will be tested in the coming years with 23,000+ units being delivered in 2015. A total pipeline of 54,495 units is expected to be delivered between 2015 and 2017, 45.7% of this coming from Dubailand and Sports City master developments.

If Q2 2014 is to be a new peak, we can see that value trends following the historic market high of 2008 differing from that of today – 5.1% drop in the last nine months and 21% in the corresponding period following the former peak.

The factors at play today are the same as 2008 – sentiment, economics, finance, supply & speculation – some of the rules governing the real estate market have, however, changed led by the Central Bank, Dubai Land Department and leading quasi-government developers.

Major banks’ project finance appetite for real estate development is still limited outside of one-off client relationships and top tier developers. This would exclude industry projects (schools, hospitals etc.) and built-to-suit opportunities with pre-lets and secure income. There are, however, encouraging signs that some major banks are entering the market with more favourable real estate project finance products.

The volume of mortgage deals at the end of Q1 2015 is back down to levels recorded in March 2013, having peaked in between around Q1 2014. Around the peak we witnessed a spike in the level of refinanced mortgages following a drive from local banks with new products targeting this segment.

Government backed developers have led initiatives requiring 40% payment on off-plan projects prior to re-sale. This has acted to cool the speculation at certain schemes, with investors forced to look at longer term investments.

Sentiment remains a key factor driving the residential market in Dubai.

Cavendish Maxwell has looked to quantify this in a Residential Market Sentiment Survey to gauge the temperature of the market.

This found over the last three months that the majority of agents (58%) have observed an increase in new seller instructions representing an increase in availability of unit and willing sellers. The majority of agents (44%) have seen a drop in new buyer enquiries and a lower buyer demand which together would support a further drop in prices.

51% of the agents feel that their sellers have expectations that are above the achievable market price. The agents also feel that 56% of their buyers have expectations that are below the achievable market price.

Moving forward, the vast majority of agents (68%) feel that sales values will decline in Q2. 48% surveyed indicated that this decrease in value would occur alongside an increase in sales activity. With regards to the rate of decline, the majority of the agents (45%) expect a drop of 1% to 5% in Q2 2015.