Q1 2014 DUBAI PRIME RESIDENTIAL REVIEW -...
Transcript of Q1 2014 DUBAI PRIME RESIDENTIAL REVIEW -...
RESIDENTIAL RESEARCH
Highlights• In the fourth quarter of last year, both prime apartment and villa prices
rose by 15% year-on-year – a slowdown compared to the preceding four quarters, when the growth rate averaged 21%.
• The deceleration in the pace of price growth was primarily reflective of slower demand as a flurry of “cooling” measures were introduced in the final few months of 2013. This included, for example, the rise in the transfer fee from 2% to 4% and new mortgage caps for nationals and expats. That said, in November, it was announced that Dubai will host the Expo 2020 event, which provided a strong boost to confidence.
• Given that prime residential prices are still almost a third below their previous peak, and the fact that there is little in the way of new apartments due to be delivered over the next 12-18 months, we think there is decent scope for prices to play “catch-up”. We anticipate that prime residential prices in Dubai could rise by 10-15% this year.
Q1 2014
DUBAI PRIMERESIDENTIAL REVIEW
Sep 2009Dubai World reschedules debt
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Q1 2014DUBAI PRIME RESIDENTIAL REVIEW KnightFrank.ae
Chart 2:
UAE bank loans and real estate mortgage lending growth
Chart 3:
Prime existing stock and new supply (prime property = worth over AED10 million)
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2013 2014 2015 2016
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New supply pipeline, number of units (LHS)
Total stock, number of units (LHS)
Supply as a % of total stock (RHS)
Chart 1:
New UAE loan-to-value mortgage limits
100%
90%
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Source: Central Bank of UAE Sources: Reidin and Knight Frank
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UAE Nationals
Second andsubsequentproperties
Off-planproperty
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UAE bank loans, advances and overdraft to residents (% y/y)
UAE real estate mortgage loans (% y/y)
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Chart 4:
Apartment and villa prices, index, Q1 2008 = 100 and key events
So where could prices end up over the next year or so? Certainly, average prime apartment prices are still almost a third below where they were during the 2008 peak, suggesting that they still have plenty of scope to rise.
After all, that’s exactly what prime villa prices have done over the past 18 months or so, albeit the peak-to-trough fall here was smaller. What’s more, 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 prime residential market should also benefi t from Dubai’s growing population of high-net-worth individuals, attracted by the emirate’s favourable tax regime, strong lifestyle characteristics and a well performing economy. On balance, we think that residential prices could rise by another 10 – 15% over the next year, with the differential between prime apartment and villa prices closing as the former outperforms.
To see how our Dubai forecast compares with other key global cities read Knight Frank’s Prime Global Cities Forecast.
my.knightfrank.com/research-reports/prime-global-cities-index.aspx
2014 forecast
Dec 2013Property rent caps introduced
2008 2009 2010 2011 2012 2013
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Sep 2008Lehman Brothers collapses
Villa Apartments
Mid 2010 -beginning of 2012Residential prices
begin to reach their troughs
Late 2010/early 2011Protests begin to erupt across the Arab world
Late 2012Developers
restart construction
Sep 2013Dubai Land Department
doubles transfer fees to 4%
Nov 2013 Dubai wins EXPO 2020
“Cooling” Measures Temper Price Growth in Q4 2013At the tail end of last year, signs began to emerge that the Dubai government’s efforts to cool the residential property market were paying dividends. Admittedly, in annual terms, both prime apartment and villa prices saw double-digit increases of 15% in Q4, however, the growth rates were at their weakest levels since mid-2012.
But the slowdown hasn’t come as much of a surprise. After all, a number of measures have been introduced in order to address concerns that another speculative bubble is forming. For example, between September and December, the Dubai Land Department increased the transfer fee from 2% to 4%, Emaar speculated on banning property agents from fl ipping off-plan property before handover and the Central Bank announced new mortgage caps for both expatriates and UAE nationals. All of this helped to reduce transactional activity across the wider residential sector in the fi nal part of last year.
That said, at the end of November 2013, it was announced that Dubai would host Expo 2020. This not only provided a strong boost to confi dence, but also put the emirate back in the spotlight. What’s more, developers 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 mid-range of the market, rather than prime.
Nevertheless, this year’s supply pipeline isn’t small; new prime residential units (with a value of AED 10 million or over) are expected to be equivalent to just under 10% of existing stock. However this fi gure should fall to just 1.6% in 2015, before rising to 4.6% in 2016.
Source: Central Bank of UAE
Sources: Knight Frank
KHAWAR KHANResearch Manager
“We anticipate further growth in prime residential prices of 10-15% this year, supported by the limited supply of new apartments, rising population of high-net-worth individuals and strong economic fundamentals.”
VICTORIA GARRETTAssociate Director of Residential
“An increase in transfer fees from 2% to 4% addresses concerns of another bubble as a slowdown in price increases is noted.”
KnightFrank.ae
What can USD 7m buy you?
Palm JumeirahSignature villa, 7,000 sq ft BUA, 13,000 sq ft plot area
Dubai MarinaLe Reve apartment, 6,200 sq ft BUA
Emirates LivingEmirates Hills villa, from 8,000 sq ft BUA, 15,000 sq ft plot area
Al BarariUpgraded villa, 16,448 sq ft BUA, 16,404 sq ft plot area
Research
Residential
Khawar KhanResearch ManagerO: +971 4 4512 000M: +971 56 1108 [email protected]
Victoria GarrettAssociate DirectorO: +971 4 4512 000M: +971 56 7835 [email protected]
© Knight Frank LLP 2014Knight Frank consider prime residential property to comprise apartments and villas valued at a current market rate of AED 10 million and over.
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