Greater clarity and enforcement of the regulations set by the Real Estate Regulatory Agency (Rera) will bring increased maturity to Dubai's property sector.
Speaking to Emirates Business, Ian Albert, Regional Director of Colliers International, said: "Better financial positions of developers leading to well-capitalised quality developments can help Dubai improve its position on the real estate radar."
He said Dubai's residential real estate market continues to fluctuate by property type on a month-by-month and quarter-by-quarter basis. "However, there are early signs of underlying stability in the market," he said.
Albert also said Colliers was aware of a few Abu Dhabi banks that are looking to enter the mortgage lending scene in the near term.
What efforts do you think Dubai needs to make in order to improve its position on the real estate radar?
We applaud the recent efforts of Dubai Government and Rera to regulate the Dubai property sector. The financial requirements for developers alone will start to introduce a new class of well-capitalised, quality developments. And the banning of flipping has already weeded out the speculators. Property is being viewed as the long-term asset class it is intended to be. However, greater clarity and enforcement of Rera regulations will bring continued maturity to the property market.
You said in your recent HPI Index that Dubai is seeing signs of stabilisation, however, factors such as finance and supply are important to maintain the stability of its property market. Do you see any relief coming in from the mortgage side in the near term?
The Dubai residential real estate market still fluctuates by property type on a month-by-month and quarter-by-quarter basis. However, there are early signs of underlying stability. The Colliers House Price Index, which tracks Dubai residential property prices through the review of actual mortgage transactions by banks, is now two per cent lower than it was at the start of 2009. During the year prices fell dramatically overall, but completed properties within the market have shown signs of recovery. In terms of the availability of finance, we really need to wait until all the banks publish their end-of-year results. We don't yet know their level of exposure to bad debt and what provisions they will need to make. Any write-downs will have an impact on their capacity to reintroduce greater liquidity into the market as well as on their risk appetite for real estate financing. There's no question that an excess of supply will have a natural dampening effect on property prices. How much of an effect depends on the property type, location and what it is competing with against the prevailing economic conditions. Remember we have seen a number of projects being delayed or cancelled, so for now it is more probable that new developments will continue to be dripped onto the market.
How do you see the mortgage sector going in 2010?
We expect more lenders will enter the market. Financial institutions will continue to issue mortgages as they are in the business of making money. However, the lending criteria will be much stricter.
Can you elaborate more on this?
We are advising a number of financial institutions on market conditions and their potential entry or re-entry. These discussions are confidential, but the fact that they are looking at this sector is encouraging in itself.
Are you aware of any particular banks entering the real estate market in the UAE?
We are aware of a few Abu Dhabi banks looking to enter the mortgage market.
Is Abu Dhabi least affected by the crisis that hit the real estate sector?
Abu Dhabi did suffer from excessive off-plan speculation [flipping]. The removal of the speculative element has had a significant downward impact on prices. It should also be remembered that Abu Dhabi entered the international real estate sales market later than Dubai and is only now beginning to see delivery of some of the early projects. However, Abu Dhabi has continued with a number of major infrastructure plans and with the ongoing construction of projects, demand for housing has increased, which has led to a rise in rental rates.
How is Dubai faring in comparison to the rest of the UAE, the GCC and the Mena region?
Each of the Gulf states has suffered from the global financial crisis, some more than others. In order to set an 'approximation benchmark' to assess the impact of the crisis, Colliers looks at several indicators but two are primary; what was the level of property speculation prior to the crisis and what was the level of global integration (non-reliance on the oil sector) in the local economy. On both these points Dubai scored high; it should be remembered that the diversification of the economy by Dubai was applauded internationally. As a result of these two factors, Dubai has probably suffered the most among the Gulf states. At the other end of the scale, Saudi Arabia scored low on both these areas making it the least affected Gulf state. The remainder of the states sit between Dubai and Saudi Arabia. Naturally, as the world comes out of the recession, Dubai should follow.
Do you have estimates on the supply that is likely to enter the Dubai market in 2010?
We estimate between 18,000 and 20,000 residential properties will be handed over this year. By 2011, that figure will grow to 34,000.
Is Colliers looking to develop a house price index for any other emirates/cities in the GCC?
The HPI takes its information from banks on a monthly basis and produces the quarterly analyses. As the core data is drawn from actual mortgage transactions in order to produce a HPI, there must be an active mortgage market. We are in discussions with a number of lenders who are urging us to increase the geographical coverage, but our starting point must be the quality of data – simply taking approximate prices from brokers is not an option for us.
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