Finding the green shoots of recovery in Dubai's property market

If you look hard enough, there are green shoots of recovery in Dubai's real estate market, especially in the prime residential sector.

Although prices in the emirate's prime market as a whole were down by 3.7 percent in the year to the third quarter of 2020, a closer analysis reveals pockets of stability and even increases.

Knight Frank has launched its latest Prime Global Cities Index for Q3 which shows prices are still falling - by 1.7 percent in the latest three-month period. Not a surprise given years of oversupply and now a weaker economic backdrop.

But Taimur Khan, research manager at Knight Frank Middle East, told Arabian Business that the rate of decline is now slowing, where a year ago prices were falling by more than 5 percent.

"In more established prime areas we are beginning to see prices stabilise and even increase in some cases, for example on the Palm Jumeirah," he said.

Prices on the Palm seem to have reached their trough in May and since the average transaction price per square foot has increased for five consecutive months and now stands 4.2 percent higher, he revealed.

Khan told Arabian Business that one of the notable trends seen this year in the prime market in Dubai has been the transition away from the primary market and towards the secondary market.

In the year to date to October 2019, 56 percent of property purchases were off-plan purchases and over the same period in 2020, this number has fallen to 41 percent.

"There have been two main factors which have underpinned this trend. First, the relative revaluation in the secondary market compared to the primary market has made this market more attractive to both investors and end-users. Secondly, as a result of near-historic low mortgage rates and the increase in the loan to value (LTV) ratio by the UAE Central Bank, anecdotally, we have seen greater levels of demand from end-users who tend to favour the secondary market," he explained.

Due to this shift in demand, there is a significant divergence in performance between the primary and secondary market, where, over the same period, off-plan transactions were down 27.2 percent, whereas secondary market transactions demand decreased only marginally by 1.2 percent.

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Khan added: "We expect this trend to revert back to historic norms and the year-on-year off-plan deficit to moderate as the availability of stock on the secondary market dissipates, where demand is likely to be skewed towards off-plan projects nearing completion and for branded units."

As a result of the stringent lockdown measures which were put in place in Q2, total prime transaction volumes in the year to date to October are 10.5 percent lower compared to the same period a year earlier. This compares to a decline of 19.5 percent in the mainstream market.

Khan said demand bounced back strongly in Q3 where quarter-on-quarter prime transaction volumes increased by 42.6 percent.

https://www.arabianbusiness.com/property/454464-finding-the-green-shoots-of-recovery-in-dubais-property-market