Property prices at 11-year low: Property Monitor Reports

Property prices in Dubai continued their expected downwards trend in August declining almost 1.4% on a monthly basis. Albeit this was at a slower pace compared to the earlier summer months where declines of 2.1% and 2.7% were recorded for June and July, respectively.

At AED 807 per sq ft presently, property prices sit just below similar rates last recorded in May 2009. They are now 34.6% away from the market peak in September 2014, and only 2.8% from the previous market trough of April 2009. As previously forecast, it is highly probable that we will breach previous market lows this quarter and reach new historic lows in November this year for both apartments and villas.

Transaction volumes in August tallied 2,462 which represents only a very slight decrease from 2,496 in July. Historically, August has been a slow month for transactions being the peak of summer in Dubai with many residents and citizens travelling overseas and visitors waiting until the cooler months to travel. Nevertheless, the figures this year are much better than might have been expected.

August 2020 compares favourably to both, 2019 when a monthly decline in sales volume of 48.5% took place, and also 2018 when a decline of 39.9% in sales transactions was registered. Pent-up and unfulfilled demand during the restrictive months of the pandemic also contributed to the robust performance of August sales. This is a bright picture of demand even against the backdrop of steadily declining property prices.

Transactions for completed properties continued to maintain their newfound strength with Title Deed transactions accounting for 68.4% of all sales in August, largely in line with the 70.1% recorded for July. A trend appears to be emerging with a shift towards completed property over the historically dominant off-plan, which has held a 5-year average of 53.9% in its favour.

Two factors are contributing to this emerging trend. The oversupply situation was exacerbated by the disruption in transaction activity during the early months of the pandemic with developers now considering changes in their launch calendars. Developers are also increasingly facing the reality of projects going through the 3-4 year development cycle but not selling out by the time of handover.

This is leading them to sell unsold units on project completion, which are subsequently recorded as Title Deed transactions.

Low interest rates continued to drive mortgage transactions in August, with the latter comprising initial mortgages as well as refinancing. August recorded a total of 1,734 mortgage transactions, up 18.2% from July. High volumes of mortgages for ready apartments and villas was the primary factor contributing to the overall growth in activity.

Mortgages climbed 10.4% on a monthly basis but a strong 51.1% year-on-year for this segment. Gross rental yields remained relatively stable in the mid-6% range, indicating a fall in rents that is in line with property prices. Yields remains considerably higher in Dubai compared to other global cities, increasing its appeal as a safe haven for investors.