The Lilian Tower under construction in Business Bay. Antonie Robertson / The National
The fall in residential prices in Dubai which has been taking place over the past three quarters looks set to continue for the second half of this year and the early part of 2016.
The underlying problem appears to be that builders keep outpacing buyers – although at least one developer is wondering if local consultancies’ forecasts are overstating the outlook for supply.
Looking back to the first quarter of this year, CBRE’s UAE head of research and consultancy, Matthew Green, says that sale prices dropped by 2 per cent and rental growth stayed flat.
“We’ve seen these trends continue into Q2, and we see them continuing into the rest of the year,” he said. “In fact, there may be a speed in the pace of sales decline.”
He attributed this to the considerable pipeline of properties that are due to come onto the market this year. At the start of 2015, CBRE predicted that there would be 23,000 new homes delivered in 2015.
“We think that may come down somewhat, but we still think there will be around 20,000 completions,” Mr Green added. That represents a significant ramp-up in supply. In 2013, around 14,000 new homes came onto the market and in 2014 that increased to 16,000.
When asked whether he thought this was made up of projects that were launched prior to the 2008 financial crash, or new launches that have occurred over the past three years, he said it was “a bit of both”.
“There is a lot of product coming in from areas like Sports City and Dubailand. The projects that have been restarted are the ones being completed there. But there are also Downtown Dubai projects that will be handed over and these have been launched in the current cycle.”
Niall McLoughlin, senior vice-president at Damac Properties, said that there has been a lot of unnecessary doom-mongering about the state of Dubai’s property market, and that the pipeline of new homes due to be delivered this year has been overstated by the property consultancies, whose estimates have ranged from 16,000 new units to 23,000.
“We, as a publicly listed company, have reported to the market that we are going to deliver 2,500 units this year. Our main competitor has reported 600. So if you take the top two developers in town, who are delivering, let’s say 3,000 units, and the market is saying that the supply this year is going to be 21,000 – where is the rest coming from?” he asked.
“If you take a typical 30-storey tower, with around 200 units, that would mean you’d need another 90 towers. We’re stumped and we can’t get to the bottom of where these numbers are coming from.”
He also argued that the decline in property values can be explained by the fact that in 2013 and early 2014, many of the project launches that took place were at prime sites in Downtown Dubai, where apartments can generate up to Dh2,000 per square foot. Now, developers are building in peripheral locations where prices are around half of that.
“It’s a different product, and that’s key to the Dubai market. It has matured and there is a need for more value accommodation.”
Craig Plumb, head of research at JLL MENA, said that Damac has a point when it comes to completions – but added that the supply numbers come from the developers themselves.
He said that JLL’s own data, which said that 720 units were delivered in Q1 but forecasted a further 22,000 completions this year, “is based on what developers inform us each quarter, and in reality they are always overly optimistic”.
“It is quite normal that many of these units will be delayed into 2016 and 2017.”
Source : https://www.thenational.ae/business/property/questions-raised-over-dubai-property-supply-amid-gloomy-price-forecast