Decline in housing costs forecast to continue

Housing prices and rents will continue to decline in the UAE next year despite growing demand, local analysts predict.

The Dubai Land Department recorded Dh143 billion (US$38.93bn) in property transactions last year, a 16 per cent rise on 2010. Pawan Singh / The National
Powered by automated translation

Housing prices and rents will continue to decline in the UAE next year, despite growing demand for homes in many neighbourhoods, local analysts predict.

Location, location, location:

Industry Insights What's hot and what's not in the world of property. Learn More

A wave of completed projects will add thousands of homes to the market and give home buyers a variety of choices.

"Unless we see a real pick-up in demand driven by population growth and job creation, I can only see the downward trend [in prices] continuing," said Paul Maisfield, the general manager in Abu Dhabi for Asteco, a property firm.

There was an increase in purchases of high-end properties last year, in part due to increased activity from regional buyers looking for a haven from turmoil in other areas.

The Dubai Land Department recorded Dh143 billion (US$38.93bn) in property transactions last year, a 16 per cent rise on 2010, according to data released yesterday. But the number of transactions fell to 35,297 from 38,410 in 2010, an 8 per cent dip.

Sixty per cent of the sales involved mortgages, a 12 per cent increase from 2010, indicating a "recovery of the property financing and the return of healthy activities", the Land Department said.

Emaar Properties said yesterday the "socio-political changes emerging from the Arab Spring" and new businesses establishing headquarters in the UAE would spur the market.

"The property sector of the city is poised to benefit from this and record positive growth in 2012, across residential, commercial, retail and hospitality," Emaar said in a statement to Zawya Dow Jones.

But analysts still see headwinds to any prolonged recovery, even though most agree prices are likely to be near bottoming out.

In Dubai, more than 27,000 homes are scheduled for completion this year, according to Jones Lang LaSalle research. Although many of those projects are likely to be delayed, the number of units will still affect pricing.

The majority of the new apartments and villas are expected to hit the market this year in Dubai Marina and Dubailand, the master-planned development along Emirates Road. "Dubailand and areas further afield will continue to struggle," said Matthew Green, the head of research for CB Richard Ellis. "There are so many better options in other areas."

Villa developments such as Palm Jumeirah and Arabian Ranches are more in demand and will continue to perform better than apartments, analysts say.

Of the 12,000 homes Asteco forecasts for completion in the first half of this year, 10,700 are apartments.

"Sales prices for apartments and villas are expected to see marginal declines, predominantly for areas with ongoing construction and incomplete infrastructure," Asteco predicted. The impact of new homes will be even more evident in Abu Dhabi, due to its first large-scale completions of developments in freehold zones. Asteco expects more than 24,000 homes to enter the market this year.

The new projects, offering the type of quality and amenities once hard to find in Abu Dhabi, are likely to attract both tenants and buyers, leaving older builders to struggle, analysts say.

"There is going to be a lot of churn," Mr Green said.

twitter: Follow our breaking business news and retweet to your followers. Follow us