Property prices in Dubai are bottoming out with initial signs of confidence returning to the market, new research said yesterday.
"Distressed stock is gradually clearing, with further signs of consolidation as volumes continue to pick up. Also, more recently, mortgage providers have moved to ease their requirements, raising loan-to-value (LTV) and relaxing credit norms, which we view as a further sign of some normalcy returning to the market," HSBC said in its "Property Ladder" report.
According to the bank, the May transaction survey suggests that the market is starting to bottom out, with agreed prices up four per cent and five per cent month-on-month (m-o-m) in April and May, respectively.
"On the ground market testing confirms that the distressed stock is gradually clearing due to renewed interest as well as some sellers repricing, pulling their properties off the market, or putting them up for lease. Sentiment seems to be improving and sellers are now less willing to negotiate. Anecdotal evidence also suggests that foreign investors seem to be back in the market and there are bulk buyers of property for investment purposes."
Besides, most of this year's transactions have been conducted in cash, but mortgage purchases are starting to pick up following the recent change in policy by lenders. Apparently, Standard Chartered and RAKBank are leading the way, the report said.
While agreed prices are now down 23 per cent from the September 2008 peak, "we believe that it is important to compare agreed prices to advertised prices in order to fully understand the extent of the downturn". According to the report, prices are down 65 per cent from the peak asking prices to the agreed prices.
David Lepper, Head of UAE Equity Research, HSBC Global Research, said: "Market data from April and May show a range of positive indicators: agreed property sale prices are rising, volumes are holding up well, and banks have loosened their lending criteria. However, we will not be able to discern a sustainable trend until later in 2009, and while we note these positive developments, the market as a whole is coming off a very low base, given the sharp declines since the market peak. Credit growth remains subdued, and the UAE economy still has challenges to deal with."
While apartment prices (which account for 85 per cent of transactions) have started to turn around, up nine per cent in May 2009, villa prices continue to come under pressure, down 11 per cent m-o-m. Villa agreed prices have now fallen 49 per cent since the September 2008 peak, compared to only 16 per cent for apartments.
The steeper decline in villa pricing is partly due to a sharper upturn last year, but is also a result of affordability, in light of lower mortgage LTV. "Transaction prices could be understated as buyers could potentially understate the value of their property in order to reduce registration fees. That said, however, the discrepancy is unlikely to be large, since properties with suspiciously low values are typically investigated by the regulator. This means that actual prices should be somewhere in between asking and agreed, which are now starting to converge," HSBC said.
However, there are still potential risks. With the summer approaching, volumes are likely to soften leading to short-term price volatility. The school year coming to an end in June, and more supply coming on the market could lead to renewed weakness.
According to the report, construction costs are likely to come down further although the building materials price index points to a 20 to 30 per cent price drop from the July 2008. "We believe that construction costs are likely to continue to trend downwards," HSBC said.
YIELD COMPRESSION
Yield compression is now apparent as rentals continue to slide (down 41 per cent year-to-date), while prices start to stabilise. Rental yields are down from seven per cent in March to 5.9 per cent in May. However, yields on asking prices are higher, upwards of 10 per cent in May.
Rental yields initially expanded, as prices were first to get hit by tightening credit conditions. Rentals, on the other hand, were only impacted after the first lay-offs. "Considering that rentals are a pure reflection of demand/supply dynamics, we believe they are likely to see further weakness as more stock comes on to the market."
According to HSBC, the May survey of advertised listings shows initial signs of stabilisation as transaction prices lead advertised aspirations. While down 18 per cent m-o-m in March, advertised prices in Dubai were up three per cent in April and down one per cent in May. The advertised data highlights no m-o-m change in apartment prices in May, but a three per cent m-o-m decline in villa prices.
Dubai advertised listings saw a gradual decline over the past two months despite more stock being delivered, falling 11 per cent from 5,782 in March to 5,173 in May.
"We believe this adds further credence to our analysis and shows that stock is clearing and/or listings are being pulled off the market. In any case, this is supportive of pricing. Also the shift in mix towards lease listings persisted in May 2009, increasing to 15 per cent, the highest level since we started our survey in September 2008."
ABU DHABI
Advertised prices in the capital are also showing signs of stabilisation, up two per cent and seven per cent, in April and May, respectively. Villa prices underperformed apartments, declining by four per cent m-o-m in May, while apartment prices rose eight per cent m-o-m. The bank believes this has to do more with lower affordability due to tightening liquidity than preference, said HSBC.
QUALITY UNITS IN FOCUS
In Abu Dhabi and Dubai, buyers and tenants are showing renewed willingness to pay for better units and better locations, a report by Sole Dubai said yesterday. "Even if decline patterns differ between Dubai and Abu Dhabi, falling prices are creating opportunities that boost demand in both markets. In April, we observed strong leasing and higher sales volumes," said Trevor Bondoro, Director of Sole Real Estate in the Q2-2009 real estate report on Abu Dhabi and Dubai.
"Since mortgage activity is low, cash buys constitute a significant portion of transactions. Therefore, to accurately assess price trends, it's critical to have access to data sets containing both transaction types. In Dubai, Emaar is faring best in terms of demand and pricing," he added. Bondoro said with a flight to quality clearly under way, end-user preferences are differentiating prices in favour of developers such as Emaar and preferred locations such as Dubai Marina. In the Q1 of 2009, Emaar master developments accounted for approximately two-thirds of sales and 57 per cent of new leases. "More specifically, units developed directly by Emaar represented over half of sales and 39 per cent of new rentals." Dubai Marina was the most popular area among renters, capturing 30 per cent of all new annual leasing contracts. Emirates Living came in second, at 16 per cent.
As for Abu Dhabi, "the issue of first-phase master development integration will leave certain Abu Dhabi developers more vulnerable in the short to medium term," said Bondoro. Sole Dubai's analysis shows a positive correlation between price performance and proximity to central Abu Dhabi
"Distressed stock is gradually clearing, with further signs of consolidation as volumes continue to pick up. Also, more recently, mortgage providers have moved to ease their requirements, raising loan-to-value (LTV) and relaxing credit norms, which we view as a further sign of some normalcy returning to the market," HSBC said in its "Property Ladder" report.
According to the bank, the May transaction survey suggests that the market is starting to bottom out, with agreed prices up four per cent and five per cent month-on-month (m-o-m) in April and May, respectively.
"On the ground market testing confirms that the distressed stock is gradually clearing due to renewed interest as well as some sellers repricing, pulling their properties off the market, or putting them up for lease. Sentiment seems to be improving and sellers are now less willing to negotiate. Anecdotal evidence also suggests that foreign investors seem to be back in the market and there are bulk buyers of property for investment purposes."
Besides, most of this year's transactions have been conducted in cash, but mortgage purchases are starting to pick up following the recent change in policy by lenders. Apparently, Standard Chartered and RAKBank are leading the way, the report said.
While agreed prices are now down 23 per cent from the September 2008 peak, "we believe that it is important to compare agreed prices to advertised prices in order to fully understand the extent of the downturn". According to the report, prices are down 65 per cent from the peak asking prices to the agreed prices.
David Lepper, Head of UAE Equity Research, HSBC Global Research, said: "Market data from April and May show a range of positive indicators: agreed property sale prices are rising, volumes are holding up well, and banks have loosened their lending criteria. However, we will not be able to discern a sustainable trend until later in 2009, and while we note these positive developments, the market as a whole is coming off a very low base, given the sharp declines since the market peak. Credit growth remains subdued, and the UAE economy still has challenges to deal with."
While apartment prices (which account for 85 per cent of transactions) have started to turn around, up nine per cent in May 2009, villa prices continue to come under pressure, down 11 per cent m-o-m. Villa agreed prices have now fallen 49 per cent since the September 2008 peak, compared to only 16 per cent for apartments.
The steeper decline in villa pricing is partly due to a sharper upturn last year, but is also a result of affordability, in light of lower mortgage LTV. "Transaction prices could be understated as buyers could potentially understate the value of their property in order to reduce registration fees. That said, however, the discrepancy is unlikely to be large, since properties with suspiciously low values are typically investigated by the regulator. This means that actual prices should be somewhere in between asking and agreed, which are now starting to converge," HSBC said.
However, there are still potential risks. With the summer approaching, volumes are likely to soften leading to short-term price volatility. The school year coming to an end in June, and more supply coming on the market could lead to renewed weakness.
According to the report, construction costs are likely to come down further although the building materials price index points to a 20 to 30 per cent price drop from the July 2008. "We believe that construction costs are likely to continue to trend downwards," HSBC said.
YIELD COMPRESSION
Yield compression is now apparent as rentals continue to slide (down 41 per cent year-to-date), while prices start to stabilise. Rental yields are down from seven per cent in March to 5.9 per cent in May. However, yields on asking prices are higher, upwards of 10 per cent in May.
Rental yields initially expanded, as prices were first to get hit by tightening credit conditions. Rentals, on the other hand, were only impacted after the first lay-offs. "Considering that rentals are a pure reflection of demand/supply dynamics, we believe they are likely to see further weakness as more stock comes on to the market."
According to HSBC, the May survey of advertised listings shows initial signs of stabilisation as transaction prices lead advertised aspirations. While down 18 per cent m-o-m in March, advertised prices in Dubai were up three per cent in April and down one per cent in May. The advertised data highlights no m-o-m change in apartment prices in May, but a three per cent m-o-m decline in villa prices.
Dubai advertised listings saw a gradual decline over the past two months despite more stock being delivered, falling 11 per cent from 5,782 in March to 5,173 in May.
"We believe this adds further credence to our analysis and shows that stock is clearing and/or listings are being pulled off the market. In any case, this is supportive of pricing. Also the shift in mix towards lease listings persisted in May 2009, increasing to 15 per cent, the highest level since we started our survey in September 2008."
ABU DHABI
Advertised prices in the capital are also showing signs of stabilisation, up two per cent and seven per cent, in April and May, respectively. Villa prices underperformed apartments, declining by four per cent m-o-m in May, while apartment prices rose eight per cent m-o-m. The bank believes this has to do more with lower affordability due to tightening liquidity than preference, said HSBC.
QUALITY UNITS IN FOCUS
In Abu Dhabi and Dubai, buyers and tenants are showing renewed willingness to pay for better units and better locations, a report by Sole Dubai said yesterday. "Even if decline patterns differ between Dubai and Abu Dhabi, falling prices are creating opportunities that boost demand in both markets. In April, we observed strong leasing and higher sales volumes," said Trevor Bondoro, Director of Sole Real Estate in the Q2-2009 real estate report on Abu Dhabi and Dubai.
"Since mortgage activity is low, cash buys constitute a significant portion of transactions. Therefore, to accurately assess price trends, it's critical to have access to data sets containing both transaction types. In Dubai, Emaar is faring best in terms of demand and pricing," he added. Bondoro said with a flight to quality clearly under way, end-user preferences are differentiating prices in favour of developers such as Emaar and preferred locations such as Dubai Marina. In the Q1 of 2009, Emaar master developments accounted for approximately two-thirds of sales and 57 per cent of new leases. "More specifically, units developed directly by Emaar represented over half of sales and 39 per cent of new rentals." Dubai Marina was the most popular area among renters, capturing 30 per cent of all new annual leasing contracts. Emirates Living came in second, at 16 per cent.
As for Abu Dhabi, "the issue of first-phase master development integration will leave certain Abu Dhabi developers more vulnerable in the short to medium term," said Bondoro. Sole Dubai's analysis shows a positive correlation between price performance and proximity to central Abu Dhabi
