Dubai’s tighter property rules aimed at preventing a housing bubble are the main cause of a slowdown in the emirate’s real estate sector rather than a sustained drop in oil prices, industry experts said.
Dubai has a low reliance on oil despite hydrocarbons providing three-quarters of the UAE’s consolidated revenue in 2014, according to credit agency Moody’s. Abu Dhabi is home to the bulk of the UAE’s energy reserves.
“Dubai residential property sales have declined over the past three quarters, but the drop in oil prices is coincidental and the slowdown is more due to big price increases in 2013 - the market is adjusting to return to affordable levels,” said Nicholas Maclean, managing director of consultants CBRE Middle East.
“This is a positive trend and will help prevent a bigger correction in the future.”
While housing prices are expected to drift lower this year, some experts said well-balanced supply and demand for properties should keep prices stable.
Rival consultancy Cluttons estimates house prices in Dubai rose 51 per cent during 2013 before growth slowed to 3.4 per cent in 2014. This rebound followed a near-50 per cent drop in prices from 2008 as the global financial crisis and Dubai’s debt troubles sparked a real estate crash.
Last year, Dubai doubled property registration fees and the UAE federal government raised the minimum mortgage deposits, dampening demand.
“The government was right to act to curb speculation. It’s just that these measures have now coincided with a weakening global economy,” said Faisal Durrani, head of research at property consultants Cluttons.
The impact of the new rules on house sales has been acute, said Mr Durrani, predicting further declines in prices in the second half of 2015.
Cluttons forecasts about 20,000 new residential units will be completed and handed over from now until 2017. About 41,000 units have been announced this year.
“Unit delivery and population expansion seem well matched, which indicates the residential market should be pretty stable,” added Mr Durrani.
Yet prolonged low oil prices could lead to a UAE construction slowdown, with the government the main real estate facilitator through infrastructure spending and state-linked developers that dominate the market.
“Oil is likely at unsustainably low prices - we should see a rebound, which will substantially increase government revenues in the medium term, but the question is when will that rebound happen?” CBRE’s Mr Maclean said.
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