With average residential values down 7.4 percent during the past twelve months, the rate of decline is expected to slow heading into 2017 before reaching a new base towards the end of next year, according to new research.
International real estate consultancy, Cluttons says values slipped by a further 2.6 percent during the third quarter, leaving them 26.7 percent below the last market high in Q3 2008.
With prices expected to stabilise towards the end of 2017, key triggers to slow the decline are likely to continue emerging in the form of infrastructure projects linked to the World Expo in 2020 and other mega projects. These will help to sustain, or lift, public sentiment, which has proved instrumental in keeping the emirates economic growth profile the most positive in the region.
Murray Strang, head of Cluttons Dubai said: Although our view of 2017 indicates positive signs to reverse the markets fortunes, we are closely monitoring the level of residential supply coming to the market. With 34,000 units announced this year, its clear that project announcements are continuing at an unrestrained pace, despite what could be perceived to be challenging trading conditions.
If supply continues to increase in the next 12 to 18 months, as the global economy remains unstable, it is likely to cause the current stability and projected bottoming out of the real estate market to unravel, with further price falls likely to follow suit. Demand and supply are almost in-sync currently, but this delicate balance can quickly be upset by a supply surge.
Cluttons reports that despite some submarkets heading towards bottoming out, transaction volumes are still weak and reflect the general nervousness around commitments to purchase, while the wider issue of affordability remains a stubborn thorn in the markets side.
Quarterly transaction volumes slipped by 21 percent during Q3, led by a 22 percent fall in apartment deal volumes, which are down 26 percent when compared to Q3 in 2015. The average price of a transacted villa has also fallen by 28.1 percent since the start of the year to stand at AED 3.9mn.
Faisal Durrani, head of research at Cluttons said: The villa market has continued to soften during the third quarter with values receding by 2.6 percent following a contraction of 2.5 percent in Q2, and taking the annualised rate of change to -7.8 percent. However, this figure conceals the villa markets varied performance during the third quarter, as average prices contracted mainly due to the weak performance of the luxury segment of the market.
This is down to affordability issues that persist, along with a slowing in the rate of creation of senior level executive position. These two factors combined with a weak, but notable nervousness to commit to more expensive purchases is continuing to drive down villa values across the board. Over the last three years for instance, villa priced have fallen by close to 10 percent.
Cluttons report shows that values over the last twelve months at high end locations such as Hattan Villas at The Lakes and The Palm Jumeirah receded by 11.9 percent and 11.1 percent respectively, while more affordable communities such as The Green Community and Jumeirah Village registered no change in values in Q3. Mid-range homes in locations such as Emirates Living, Arabian Ranches, and Victory Heights recorded a negligible 0.1 percent increase in prices.