Average prime apartment prices in Dubai are still about a third below where they were during the 2008 peak, suggesting they still have plenty of scope to rise, according to Knight Frank.
“… hardly any new high-end apartments are due to be delivered over the next 12-18 months (the majority of new prime supply will be made up of villas), further supporting the case that prices in the former segment will play ‘catch-up’,” the UK-based consultancy said in a new report.
The prime residential market will benefit from the growing population of high net-worth individuals (HNWIs), attracted by the emirate’s favourable tax regime, strong lifestyle characteristics and a well performing economy.
“We think that residential prices could rise by another 10 to 15 per cent over the next year, with the differential between prime apartment and villa prices closing as the former outperforms,” the report said.
In annual terms, both prime apartment and villa prices saw double-digit increases of 15 per cent in Q4, 2013. But, the growth rates were at their weakest levels since mid-2012.
A number of measures were introduced in order to address concerns that another speculative bubble is forming. Between September and December 2013, the Dubai Land Department increased the transfer fee from two per cent to four per cent, Emaar Properties speculated on banning property agents from flipping off-plan property before handover and the UAE Central Bank announced new mortgage caps for both expatriates and nationals.
“All of this helped to reduce transactional activity across the wider residential sector in the final part of last year. That said, at the end of November, it was announced that Dubai would host Expo 2020. This not only provided a strong boost to confidence, but also put the emirate back in the spotlight,” JLL said.
Earlier this month, Dubai Land Department (DLD) revealed that total value of real estate transactions rose by 53 per cent to Dh236 billion in 2013 compared to Dh154 billion in 2012.
Developers, the report said, responded by announcing a number of mega residential projects, albeit the recent trend of falling lending to the real estate sector suggests that perhaps not all of these will reach onsite. In addition, it is worth noting that most of these schemes are at the midrange of the market, rather than prime.
But this year’s supply pipeline isn’t small; new prime residential units (with a value of Dh10 million or over) are expected to be equivalent to just under 10 per cent of existing stock. However this figure should fall to just 1.6 per cent in 2015, before rising to 4.6 per cent in 2016.
Jones Lang LaSalle, a real estate consultancy, has stated that nearly 28,000 new units were expected to be completed this year, with rents and prices continuing to increase in 2014, but the rate of growth would decline from the levels witnessed last year.