House prices in Dubai fell slightly during the first three months of the year as thousands of new homes came on stream.
Figures released by the property broker CBRE reveal that average house prices in the emirate fell 2 per cent compared with the previous quarter after 16,000 new homes were completed during 2014.
The news is the first confirmation that house prices in the city are set to fall significantly this year as new homes complete at a time when oil prices have slumped and the government’s plans to slow the market come into effect.
JLL predicted in January that average house prices and rents in Dubai would fall 10 per cent during 2015 owing to a lack of affordability in the market and the recent global oil price crash, while Standard & Poor’s said they would fall 20 per cent because of increased supply and weakening investor sentiment triggered by the tumbling price of oil.
“The average sale rate for residential properties dipped by 2 per cent quarter-on-quarter and is expected to see a further drop during the course of the year,” said Matthew Green, the head of research at CBRE’s Dubai office.
“The delivery of a significant number of new units during 2015 will add further pressure to the residential market over the course of the year,” he added.
House prices in Dubai crashed spectacularly following the 2008 global financial crisis before rocketing significantly towards their pre-crisis levels in 2013 and 2014.
According to the report, the total value of housing sales transactions completed during the first quarter of the year fell 20 per cent compared with the same period the previous year to Dh6.39 billion. At the same time the total number of housing sales transactions declined 4 per cent compared with the previous year to 3,896.
The report found that sales in prime areas such as Palm Jumeirah, Dubai Marina, Emirates Living, Jumeirah Beach Residences (JBR) and Downtown Dubai accounted for a combined Dh3.27bn of total sales – 51 per cent of the total value transacted during the period.
But developers claim that the decreases in average prices come off the back of an increase in the number of housing schemes being developed in less prime parts of the city as mortgage caps continue to restrict the amount of money many people can borrow.
Last week Damac, Dubai’s second-largest listed developer, said it hoped that a switch from super-luxury apartments to building hundreds of more affordable suburban villas would help it weather the emirate’s property slowdown. It joins other developers offering more reasonably priced homes in cheaper locations including Danube, Tecom and Nshama.
CBRE reported that after massive falls and unsustainable growth over the past decade, housing rents in Dubai remained stable for the third quarter in a row.
The broker reported that rents in the city remained about the same as during the previous quarter, with most areas experiencing changes which varied between falls of 1 per cent and increases of 3 per cent.
Rents fell slightly in Al Nahda, Al Barsha, International Media Production Zone, Motor City and Liwan, while the gainers included Jumeirah Lakes Towers, Discovery Gardens and Karama, CBRE said.
“The market’s relative stability during the past nine months is reflected in the huge swing in growth figures from 27 per cent in the year to Q1, 2014 versus 3 per cent in the year to Q1, 2015,” said Mr Green.
“The leasing market is expected to witness increased landlord incentives in the form of rent-free period and other allowances, while rental declines are also likely in some areas,” he added.
Rents for three to five-bedroom villas fell by around 1 per cent compared with the previous quarter as 3,000 new villas were completed across the emirate.
CBRE predicted that average villa rents were likely to fall further as developers complete thousands more new homes over the coming year.
The most significant rental declines were in Jumeirah Village and The Villa developments, which registered a drop of 3 and 4 per cent respectively.
Follow The National's Business section on Twitter