New UAE property regulations ‘prevent overheating in Dubai’
Cluttons Middle East report finds that villas are expected to bear brunt of price declines, with outlook for 2015 remaining ‘somewhat mute’
Changes to the UAE’s real-estate regulations have stopped the Dubai property market ‘overheating’, a Cluttons report has said.
In its Spring 2015 Dubai Residential Market Outlook, the real-estate consultancy said widespread regulatory changes such as the UAE-wide mortgage cap and the doubling of registration fees in Dubai, both introduced in 2014, have helped contain the market.
There was also a significant reduction in transactional activity due to the ‘upward creep’ of project completions and the ‘slow-motion’ impact of new real estate regulations and a ‘general dent to sentiment’, the report added.
It said that villas were expected to bear the brunt of price declines, while the outlook for the remainder of 2015 was still ‘somewhat mute’.
The first quarter of the year saw overall home values drop by a further 0.8%, thereby leaving average prices down by 0.5% from this time last year, and 19.4% below the highs of Q3, 2008.
“The Federal Mortgage Caps have been in place for over a year now and the impact on the villa market has been particularly pronounced.
“The anniversary of the game-changing Federal Law has passed relatively unnoticed, however this has had a positive, but powerful influence on the level of transactions,” said Steve Morgan, chief executive of Cluttons Middle East, in the report.
With just under 1,300 villas changing hands in 2014, down 52% from 2013, transactions during Q1 2015 were down by 36% from the same quarter in the previous year, Cluttons added.
The total amount of upfront equity required for the purchase of a $1.5 million villa in Dubai has gone up to 42%, from the 20% previously required, thanks to the introduction of the mortgage caps, the report showed.
“The sustained growth in rents over the past 18 months has exacerbated the challenges of amassing a deposit, while the cost of living has continued to rise. There may be some respite on the horizon as the dirham continues to strengthen, driving down inflation,” added Morgan.
“The regulations have been instrumental in reigning in the market and the slow motion impact has been gradually amplified over the past 12 months. The result has been a much more subdued market, with the risk of another rapid correction being carefully managed away,” pointed out Faisal Durrani, Cluttons’ international research and business development manager.
The report also said that with supply levels continuing to rise, landlords are now wary of the threat of “longer void periods, due to the fear of an increased level of choice for tenants”. This may result in a period of ‘off-grid’ deals, where landlords and tenants agree to rents that are not in sync with RERA’s recommendations, the consultancy warned.
