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03 March 2024

Dubai may face housing shortfall by 2020

Real estate agents say the 25 per cent downpayment clause has impacted sale of completed properties in the affordable communities. (Dennis B Mallari)

By Parag Deulgaonkar

Dubai residential property prices are stabilising compared to the growth that the emirate witnessed in previous years, but the market will face price pressure post completion of new off-plan projects, says a real estate analyst with Standard & Poor’s (S&P), a credit rating agency.

“We are all seeing prices stabilising, thanks to the new regulations introduced.

“However, there is a softening of sentiment that is likely to have an impact on the market.

“We expect supply remaining steady, but off-plan developments that may appear in next two years will put pressure on price growth going forward,” Franck Delage, EMEA Real Estate Analyst, S&P, said on Monday during a panel discussion at Destination Dubai 2020 conference.

“In short term, the market will face challenges and supply could outpace the demand,” he said, adding, falling oil prices could have an impact on the market, as it may stall the expansion process of corporates, soften investor sentiment, weaken leasing activity and impact purchasing power.

Delage, however, believes that property developers and the property market here has learned from the past with more regulations in place such as escrow, that will help reduce risks.

“Developers are better equipped to face the softening price and this is why we have a ‘stable’ outlook for all real estate corporates in Dubai. We don’t see a change in ratings over the next 12 months.”

Short supply of units

Sharing her view at one of the panel discussions, Jesse Downs, Managing Director, Phidar Advisory, said the residential sector will see a supply shortfall by 2020, but developers will have to focus on segments facing shortage.

“There is a shortfall and it is considerable. We see an additional undersupply by 2020. There are opportunities, but where are the opportunities? I think we are overbuilding for the mid- and high-income sector.

“We need more mid-low and low income, and genuine luxury, as well.”

JLL, a global real estate consultancy, estimates supply of 25,000 housing units in Dubai this year, while CBRE, another consultancy, expects supply of 20,000 units that could have a “deflationary” impact on sales and rental rates.

Phidar’s Q4 report on the market reveals apartment lease rates remained stable quarter-on-quarter, recording a nominal increase of 0.4 per cent, but sale prices fell 3.6 per cent, pushing yields up slightly.

In the villa category, prices declined 1.7 per cent, while rents fell by 3.1 per cent.

Dubai will need a huge number of new hotels and housing as it expects to receive 25 million tourists during 2020 and over 270,000 new jobs will be created.

The Expo 2020 will run for a period of six months, starting October 20, 2020 till April 10, 2021.