New Dubai property projects ‘at saturation point’ after ‘torrent’ of announcements

Sales prices for apartments and villas continued to decline in the third quarter of 2015 amid a “torrent” of newly announced projects, according to research firm Phidar Advisory.

The company said that the quantity of announced residential projects had reached “saturation point”, with the supply currently growing at an average rate of 3.9 per cent, outpacing demand, which currently sits at 3.7 per cent. Its five-year demand pipeline forecasts robust jobs growth of 5.8 per cent a year, as a result of new roles due to be created for both the development and servicing of Expo 2020-related projects.

If all of the launched and announced projects are built, supply would continue to outstrip demand, standing at 5.9-6.7 per cent growth per year. Yet Phidar Advisory estimates that actual supply growth will be around 2.8 per cent per year.

The company’s managing director, Jesse Downs, said: “There is no reason to panic because some announced and even launched projects are not viable, so handover is not expected in the stated timeframe. However, developers and other stakeholders should monitor this carefully and plan appropriately.”

Phidar Advisory argues that many of the projects that have been announced are not feasible due to issues over their design, positioning or financing – or a combination of the three.

Ms Downs said she expects price declines to continue until the end of 2017 as a result of both market and geopolitical risks, such as the continued strength of the US dollar, low average oil prices and a likely outflow of capital from emerging markets.

“Even though a very low percentage of Dubai’s economy comes from oil, regional liquidity is determined by oil price and production volumes.”

Falling prices mean that yields are continuing to strengthen, though. Apartment yields climbed by 0.25 per cent quarter-on-quarter to 7.5 per cent, while villa yields strengthened to 4.8 per cent.

“In the context of regional economic and geopolitical volatility, yield increase is a sensible trend in Dubai real estate,” said Ms Downs.

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