Wednesday, 3 December 2008

Dubai Property price growth rate slowing

Dubai: House prices in Dubai are still rising, but the rate of increase is expected to slow in the coming year, according to the latest research into the local property market.

There was an increase of just 5 per cent in the growth of house prices in Dubai in the three months to September, compared to the previous quarter.

But according to international property firm Colliers, the rate of growth in house prices has been dropping rapidly since the beginning of the year.

Although house prices increased by 43 per cent in the first quarter, by the second quarter the growth rate had declined to 16 per cent.

Growth in residential prices is expected to slow further as the year comes to an end.

Nevertheless, year-on-year growth in the third quarter was 80 per cent.

The negativity in the market is most notable, perhaps, on Palm Jumeirah, where prices have fallen by up to 40 per cent since September. Some previously much sought-after residences in the Burj Dubai area have also seen price drops of up to 30 per cent.

This phenomenon has been attributed to the fact that an increased number of homes is coming onto the market and loans are hard to come by because of the international financial crisis.

"I think [growth in the property market] is slowing ... but what's happened is the formation of micro-markets.

"For instance, values in DIFC, from a sales and a leasing perspective, are still strong," said James Knowles, director of sales and leasing at Asteco.

The volume of transactions so far in the fourth quarter are low, but this is because people are now more cautious about investing and limited money is available from lenders, Knowles said.

The 5 per cent increase in house prices is also not bad compared to other property markets that have slowed more drastically because of the international financial crisis, he said.

"On the one hand, the index results show a 5 per cent increase in overall residential prices for the third quarter, which is good news. On the other hand, over the past three quarters, the rate of growth has slowed to the point where we expect overall price growth to enter negative territory in the fourth quarter," Ian Albert, regional director for consultancy services, Colliers, said.

Buyers in search of a mortgage used to be able to get a loan for around 80 to 85 per cent of the home value. However, it has become difficult to get pre-approved loan-to-value property loans.

Loans in the 60 to 70 per cent region are now more common.

Knowles said this was not a bad thing, as speculation would decrease.

Dubai real estate NOT affected by negative equity problems

The full scope of the real estate meltdown in Dubai is not clear and will be evident only after a few months. The Gowealthy Research Team evaluated the Negative Equity Problem in detail and has noted that it has not affected the Dubai real estate market. The term Negative Equity implies a condition in which the value of the asset used to secure the loan slides below the outstanding balance of the loan. High interest rates and a drop in the property prices have forced small-time speculators to undersell their properties in Dubai. But after evaluating prices at the various freehold clusters, we have observed that although there has been a price correction of 30 to 40 per cent at Palm Jumeirah, Business Bay and Dubai Waterfront as well as several high-yield zones, Dubai does not face negative equity problems. Our study reveals that the Dubai Property Bubble has ended; property developers are either scaling back their new projects or discussing mergers/ take overs to grapple with the situation.

Currently expatriate buyers in Dubai are guaranteed mortgages of up to 65% of the total value of the property and national buyers over 80%. Property buyers cannot avail of full mortgage options. It is only recently, in 2007 to be precise, that home financiers and lending institutions started issuing flexible loan packages. Under such circumstances, the issue of negative equity does not arise because buyers are not allowed the total price of the asset as mortgage.

Following the global liquidity crunch, banks and financial institutions in the country have tightened their lending policies and raised interest rates despite government reassurances. A majority of such agencies have even stopped issuing mortgages. Why has this happened? Primarily because, the mortgage crisis-induced credit collapse has restricted banks and financiers from lending money to one another. To overcome the situation, the Government has come up with a 'rescue' plan and announced the merger of the country's top financiers, Amlak and Tamweel into the federally administered Real Estate Bank.

The abrupt disruptions in credit flow have affected both real estate developers and investors, resulting in a general slowdown of the sector. Yet, in stark contrast to reports that failure of risk and recovery models adopted by the region's banks and financing institutions led to the current credit crisis, we note that the bulk of funds were used to finance investment assets like shares and bonds.