Dubai's property market is starting to witness the entry of professional investors, who are now taking active interest in the growing opportunities in the emirate even though house prices fell 41 per cent between fourth quarter of 2008 and first quarter of 2009, according to a property expert.
"The first quarter saw the arrival of the professional investor. They look at real estate returns solely as a means of revenue and, in time, capital appreciation," John Davis, CEO, Colliers International-Middle East, told Emirates Business.
Rental yield as a determinant of price had become secondary to short-term, speculative gains or occupier personal preferences, but is now one of the dominant markers setting price.
"Rentals are tracking back and so are the prices. The price-yield gap is closing in the past few months. With an increase in the number of vacant units rents have been falling in turn affecting property values – rental income as a driver of value."
According to Davis, the current rental yields on villas stand at five to eight per cent, while apartments and townhouses yields are at 10 to 12 per cent.
In its first quarter 2009 House Price Index (HPI) report released yesterday, Colliers said the fourth quarter of 2008 saw the initial indications of a downturn emerging when the index recorded an average decline in house prices of eight per cent over the quarter with the fourth quarter having been supported by and taking into account positive overspill from transactions that occurred late in September.
For the first time since the inception of the HPI, there is a reduction in the year-on-year statistics, with a decline of 34 per cent in house prices overall since first quarter of 2008. Prices are currently at approximately second quarter 2007 levels.
There was also a significant fall in the volume of cash transactions and properties being refinanced, but not to the same degree as new mortgage applications, the report said.
The annual overall foreign ownership index recorded a year-on-year decline of 34 per cent. The blended average house price for first quarter is approximately level with average house prices recorded in second quarter of 2007 (Dh1,042 per square foot) and marginally exceeds average house prices recorded in first quarter 2007.
During the fourth quarter of 2008, the UAE experienced the first real symptoms of the impact of the global financial crisis on the region, however the negative impact averaged over the three month period was softened as it included transactions initiated during late third quarter and being concluded in early fourth quarter.
"Without any support from previous quarters, first quarter clearly represents the impact of the global crisis on the real estate market. While there has been an easing of both availability and lending criteria in late March, which have produced some positive results, particularly in an increase in volumes. It is too soon to say what impact this will have over the medium term," said the report.
The decline in the index value was attributed to the convergence of a number of interrelated and overlapping factors such as availability of finance, expatriate job security concerns and transparency, delays and postponements.
The withdrawal from the market of two of Dubai's mortgage providers, combined with introduction by the remaining finance providers of stricter lending criteria, naturally produced a fall in the number of transactions. Where borrowers had previously been able to purchase a property with as little as a five or 10 per cent down payment, applicants are now being asked to contribute a higher level of equity increasing to 25-50 per cent of the purchase price.
"This inevitable consequence was to place property acquisition beyond the reach of a larger portion of the population. The banks are re-entering the mortgage industry and easing their lending criteria in the back end of the first quarter, but it is too early to assess the impact of this change," Davis said.
Sentiment hit
In the later part of fourth quarter of 2008 and the first two months of 2009 there were a series of announcements by companies of staff redundancies. Purchaser sentiment, as a result of a common felt job insecurity (more so in the real estate, finance and construction sectors), became progressively negative impacting on demand.
During the initial phase of first quarter as developers sought to address the realities of the new market conditions, there was a lack of information on the future of both masterplanned and individual developments.
Towards the end of first quarter the picture cleared with a number of developers stating that projects have been placed on hold until a later date or the extension of payment plans to accommodate extended delivery dates. Besides, the average rate per sqft for completed property dropped from Dh1,821 in fourth quarter of 2008 to Dh1,258 in the first quarter of 2009. This represents a 31 per cent decrease. Average rates per sqft for properties under construction declined significantly by 56 per cent to reach Dh742 in first quarter of 2009 compared to Dh1,702 in the previous quarter.
On exclusion of the Downtown Burj Dubai development from the analysis, the average rate per sqft for completed properties declined 32 per cent from Dh1,807 in fourth quarter of 2008 to reach Dh1,230 in first quarter of 2009. The average rate per sqft for properties under construction declined by 51 per cent to reach Dh708 in first quarter of 2009.
Apartments
The annual overall apartment index decreased by 39 per cent in the first quarter of 2009, compared to first quarter of 2008. The blended average rate per sqft for apartments in Dubai in first quarter of 2009 was Dh1,122. Apartments constituted 55 per cent of the total mortgaged properties used to collate this index.
The quarterly apartment index declined by 42 per cent in the first quarter compared to the fourth quarter. The index decline was driven by the easing of prices in all the developments covered by this index.
Villas
The annual overall villa index decreased by 28 per cent in first quarter of 2009, compared to first quarter of 2008. The index fell to 133 points. The average blended rate per sqft for villas in the first quarter was at Dh961. Villas constituted 39 per cent of the total mortgaged properties used to collate this index. The villa index decreased in first quarter to reach 133 index points. A 40 per cent decline compared to fourth quarter of 2008.
Townhouses
The annual townhouse index decreased in first quarter by 16 per cent, with the average blended rate per sqft at Dh855. Townhouses constituted seven per cent of the total mortgaged properties used to collate this index. Prices in first quarter had a large decrease, with the index falling by 42 per cent.
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