Property bubble unlikely
More mature, considered approach will shield Dubai from another burst: JLL
Shaikh Mansour bin Mohammed bin Rashid Al Maktoum touring Cityscape Global at the Dubai International Convention and Exhibition Centre on Wednesday. — KT photo by Shihab
Concerns over the possibility of another residential property bubble in Dubai are limited with the emirate taking a more mature and considered approach, Jones Lang LaSalle, or JLL, said on Wednesday.
Alan Robertson, chief executive officer of JLL Mena, observed that all sectors of the Dubai real estate market maintained their positive performance during the seasonally-quieter summer months.
“With just weeks to go before a decision is announced, speculation around Dubai’s bid for Expo 2020 continues to contribute to a prevailing sense of positive sentiment concerning the city’s real estate market. While there has been concern over the possibility of another residential property bubble, and Dubai is as ambitious as ever, we believe these concerns are limited. We are seeing a more mature and considered approach which is only going to benefit the long term health and credibility of the real estate sector,” he said in JLL’s latest Dubai Real Estate Market Overview for the third quarter. “The broad-based recovery in the residential sector is resulting in price and rent increases across most areas. Unlike last year, the fastest growth is now being experienced in mid-market and affordable projects and there are signs that the rate of increase is slowing in some high end locations,” he added.
“While the retail, hotel and industrial segments continue to experience solid growth, the recovery of the office sector remains more selective and concentrated in the prime segment with the large level of supply and high overall vacancy rates depressing rental pressure elsewhere.”
With property prices rising up to 20-30 per cent over the past year in Dubai, experts have been warning of another bubble in the offing. They almost relate the new risk to 2008 when prices crashed more than 50 per cent, triggering a corporate debt crisis. JLL noted that the Dubai economy is expected to maintain its strong growth and expand at more than four per cent in 2013, supported by the growth of sectors such as hospitality, trade, transportation and logistics, in addition to the recovery of the construction and real estate segments.
“There remains more buyers than sellers, creating a seller’s market. In particular, interest has been noted from Kuwaiti investors for all asset classes in the Dubai real estate market,” it said.
JLL observed that the residential market continues to lead the Dubai market and experienced a broad-based recovery in the third quarter, with prices and rental values picking up in almost all locations. “Interestingly, it has been the secondary and more-affordable locations that have seen the greatest increases in third quarter, while the primary areas are now seeing slower paces of growth.”
Activity in the retail market was quiet due to the summer period. However, as demand remains strong and retailers are upbeat, the sector is expected to end the year on a strong note in both its primary and secondary segments.
The hotel sector has continued its strong performance, on the back of the booming tourism and aviation industries. Year-to-date occupancy rates have risen to 79 per cent while year-to-date average daily rates are also higher at $235. A number of hotels are due to open in the short run but the sector is expected to maintain its positive performance, JLL noted.
Dubai’s office market witnessed limited leasing activity in the quarter. “There is definitely more active tenant interest, with a number of major pre-commitments being close to fruition. However, demand remains focused on a few prime buildings in each location and other buildings in the same precinct are experiencing little tenant interest. There has been some rental growth in prime buildings in new locations such as Business Bay and JLT [Jumeirah Lake Towers], but high vacancies and the significant level of new supply remain obstacles to a broad-based recovery,” it said.
Craig Plumb, head of Mena Research at JLL, said recent data continues to be relatively positive, confirming the stronger outlook for the Dubai economy. “This has resulted in more positive sentiment towards the Dubai real estate market over the past three months.”
“While there is no doubt that the real estate market is currently recovering, this recovery is currently uneven, with concerns remaining about the level of existing vacancies and future supply [particularly in the office market], and the continued reliance of the residential market on demand from investors rather than end users,” said Plumb.
Last month, Standard Chartered also said Dubai’s housing market was growing on the back of improving fundamentals with low off-plan sales.
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