Dubai property prices dip in Q2 as business activity hits two-year low

Real estate prices fell in Dubai along with growth rates in business activity and new orders during the second quarter.

About half of the 70 property agents in Dubai polled by Emirates NBD and Markit reported a drop in average sale prices during the second quarter. This coincided with fewer new buyer inquiries. This was attributed to the Ramadan period as well as reduced risk appetite among investors, especially from international buyers.

In the course of the next 12 months, about 52 per cent of property agents expect a fall in property values, while only 30 per cent foresee an increase.

Dubai’s rental market remained strong, and the number of new rentals increased in response to demand, especially for apartments, the survey showed.

The property agents surveyed anticipate a moderate fall in rental prices during the next three months.

The bank also surveyed 600 households. Among those facing a rent renewal in the next three months, 58 per cent expect a rise in their rental price and only 15 per cent expect a reduction.

The decline in sale prices is due to softened appetite in response to global macroeconomics as well asthe challenge to foreign investors of meeting the 25 per cent deposit requirement on home loans, said Matthew Green, the head of research and consultancy at CBRE in Dubai.

The Central Bank introduced the mortgage cap in October 2013. Expatriates buying a property for less than Dh5 million need to deposit 25 per cent, and 35 per cent for properties above Dh5m. For second properties, the deposit rises to 40 per cent.

“There is uncertainty around Greek and Russian economies, and with the volatility in the currency market it is far more expensive to buy properties in Dubai for Indian and European expats than, say, a year or two ago,” he said.

“Moreover, a significant number of units are still being delivered to the market and more are expected to come into the market during the second half, putting pressure on sale prices.”

Prime areas are expected to see a higher rate of decrease in sale prices than others. CBRE had forecast that 23,000 new homes would come on to the market this year.

“Rents are going to outperform the sale prices because the occupier market is strong and growing, as the economy is robust,” Mr Green said.

The Emirates NBD Dubai Average Sold Prices Index stood at 35.4 in June, down from 52 in April. A reading of 50 indicates no change.

Despite that, a majority of the polled 600 householdswere “highly upbeat” about both current and future property values, according to the bank.

The easing of the property market in Dubai coincides with a slowdown in the growth rate in business activity and new orders in June, which touched 27- and 53-month lows, respectively.

But business confidence is up, according to Emirates NBD.

The private sector in the emirate was more confident of a pickup in business than at any time in the last 19 months. There were more jobs in June than October.

The Emirates NBD Dubai Business Activity Index was at 55.5 last month, the lowest index reading since March 2013. The index read 57.6 in May.

While construction companies showed the biggest increase in business activity, new orders and employment during the three months through June, travel and tourism companies reported the fastest rise in business activity. Wholesale and retail companies recorded a weaker rate of growth.

Businesses reported a modest rise in total input costs, but competitive pressures led them to discount their output charges.

Sale prices fell the most in the wholesale and retail segment, although there was also discounting in the construction and tourism segments.

“While the hotel occupancy levels are high, the new hotel supplies are putting a deflationary effect on the average daily rates and would do so for the rest of the year,” Mr Green said.

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