Property prices in one of the world’s most overheated markets have begun to level off, according to data released by real estate company Asteco.
The latest report shows prices increasing by 6% for villas and 3% for apartments in the first quarter of this year. Prices last year rose by 42% overall – about 3.6% per month on average, 3 times the present rate. Dubai’s market is recovering equilibrium after a sharp upswing triggered when the city won the honour of hosting Expo 2020.
‘There were significant increases in unit prices in the fourth quarter of 2013 following news of Dubai’s Expo 2020 win,’ according to John Stevens, Managing Director of Asteco. ‘Now we are witnessing growth in secondary residential areas,’ Mr. Stevens went on to say, ‘which are attracting prospective purchasers looking for more sensible asking rates with potentially better growth potential.’
While concerns remain in the rental market, with apartment and villa prices rising by 5% and 3% respectively in the first three months of the year, the impact of the new regulations on loan-to-value (LTV) rates for mortgage applicants. As a result of these, the report said, there is increased interest from potential buyers in competitively-priced, off-plan developments offering attractive payment plans. This change should filter down into the rental market as new landlords pass the benefits of lower initial costs and increased investment security down to their tenants.
The new regulations, pushed through by the Central Bank this year, slightly favour Dubai native buyers, and are designed to reduce speculation. First homes priced at less than $1.36m, LTV is capped at 80% for UAE nationals and 75% for expatriates of the UAE. Higher-priced properties face stiffer regulation and LTV falls to 65% to 70% for higher priced properties, and 65% for UAE citizens’ second homes, 60% for expatriates. Most significantly, loans for off-plan units are capped at 50% flat, regardless of the price of the property or any other factors.
More than 3,000 new apartments came on the market in the first quarter of 2014, suggesting that part of the reduction in price growth rates may be down to increased supply. Off-plan apartment projects like Mulberry Park Heights, at Mohammed bin Rashid City, Atria in Business Bay, Palm Tower Residences on Palm Jumeirah, and Celestia Serviced Apartments at Dubai World Central, are part of a new generation of Dubai projects, because they’re affected by the new regulations.
Prior to these, Mr. Stevens says, ‘we saw deals flounder as sellers with genuine offers decided to wait in anticipation of further growth. Transactions slowed down in established communities where surging prices went beyond what buyers were willing to pay.’ Looking forward past the expo, it’s plain to see two competing visions of UAE property success – the old Dubai model, and the lower-risk, lower-return, higher-stability Abu Dhabi model. For Dubai, home to what one commentator has dubbed ‘bubbleomics,’ many think it’s time to switch; but the latest figures suggest that this may have already begun to happen.
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