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Lack of cash a bigger deterrent to Dubai property investors than oversupply fears

Too much attention is paid to estimated property completions in Dubai and it is of little interest to investors eyeing returns, says one real estate consultancy.

Although a large supply of new homes has a direct effect on the rental market, it is “fallacy” to believe that such numbers will drive sale prices downwards, says Phidar Advisory.

Jesse Downs, the co-founder and managing director of Phidar Advisory, said: “That type of data can influence investor sentiment but ultimately it is secondary to a whole tier of factors. One is liquidity. Sentiment can fuel a boom, but liquidity is what drives down markets.”

Phidar’s Q4 2015 report stated that the amount of liquidity had been affected by the sheer volume of off-plan sales in recent years, regardless of how close to completion these units actually are. Stage payments are still being made by investors for homes bought over 18 months ago, and with regional liquidity tightening, capital costs increasing and regional growth slowing, this means there is less money around to invest in either completed homes or new, off-plan units.

A war of words broke out between Damac Properties and a number of property consultancies last year as the Dubai-based developer took exception to reports of 25,000-plus units being delivered over the course of 2015.

Damac’s managing director, Ziad El Chaar, claimed that the consultants’ reports were having “a detrimental effect on the generally positive sentiment in the market”.

He said: “To suggest that Dubai is to be flooded with further housing is professional malpractice.”

JLL had argued that its forecast of 25,000 new homes being delivered in Dubai last year came from the developers’ own estimates. It has just published its own 2015 UAE property review, which stated that only 7,800 of these were delivered, adding that on average between 30 and 50 per cent of homes that developers had expected to be delivered were actually completed in recent years.

JLL added that developers’ estimates for completions in 2016 stand at 26,000, although it expects that many of these will also be pushed back. Phidar had said at the start of last year that 18,430 homes would be built in Dubai’s master-planned communities and investment zones but revised this down to 14,300 over the course of the year.

It estimated that over the next five years, the number of new homes actually built will grow at 3.6 per cent, while the numbers announced and launched suggest an increase of between 5.7 and 7 per cent. Demand growth is expected to be 6.5 per cent.

Both Phidar and JLL stated that apartment prices in Dubai had fallen by about 13 per cent during the past 12 months.

Phidar said this had pushed rental yields up to 7.7 per cent, but it is not expecting a levelling off or a recovery in the market, instead predicting a further decline in prices of up to 20 per cent through 2016 and 2017, as declining rents weaken investor returns.

“We’re starting to see rents are softening because the demand is softening on the end-user side,” said Ms Downs. “I’m not saying it’s going to be like 2009 or 2010, but it still has a way to go.”

She added that even with a further 20 per cent decline, sale prices would still not fall to as low as they were in 2010-11.

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