Property prices to continue softening in 2019-20: S&P

Dubai - Property prices to stabilise by 2020.

Decline in Dubai property prices will continue this year and could bottom out next year, according to a forecast by global ratings agency Standard & Poor's released on Tuesday.
"The Dubai property market's long decline since a peak in second-half 2014 has prompted speculation about when it will reach bottom and begin to rebound. We expect property prices to stabilise by 2020, but do not see any meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery," said Sapna Jagtiani, associate director for S&P Global Ratings.
While addressing a press briefing on Tuesday, she said the main culprit is oversupply in the market. "In base case scenario, we expect prices to fall by another 5 to 10 per cent in 2019, coming close to levels seen at the bottom of the last cycle in 2010. In stress case, the prices could fall between 10 and 15 per cent this year and five to 10 per cent next year," Jagtiani said. According to Asteco, prices and rents in Dubai have fallen 25 to 33 per cent in nominal terms since their last peak in 2014.
"We are not at the bottom of the cycle yet and could hit the bottom in 2020. Dubai is still a dynamic market and still a safe haven market despite geopolitical situations in the region," she said during the press briefing.
According to January's House Price Index by Property Monitor, a real estate intelligence platform powered by Cavendish Maxwell, said this week that property prices registered 12-month decline of 6.9 per cent on average. The biggest drop in apartment prices was recorded in Sports City and Jumeirah Village Triangle at 9 per cent followed by 8 per cent drop in International City (clusters), Discovery Gardens, The Greens; and 7 per cent in Uptown Motor City, Jumeirah Lake Towers, JBR and DIFC.
It said rent declines for residential properties in Dubai averaged 7.9 per cent over the last 12 months, and 3.7 per cent on average quarter-on-quarter.
Real estate consultancy JLL estimates that more than 60,000 units will be delivered in 2019, while the average materialisation rate is likely to be 50 per cent, which means an additional supply of 30,000 units this year, hence putting additional pressure on prices and rentals.
Despite significant additional supply to the market in 2019 and 2020 from existing projects, S&P expects very few launches this year and the next year because developers will pull back supply in response to lower margins due to falling prices. Other factors that could help stabilise prices include improved affordability following price fall; resurgence of Asian, especially Chinese, investors' interest in Dubai's residential real estate; relaxed regulations about foreign ownership of businesses; Central Bank's removal of 20 per cent cap on real estate lending as percentage of total deposits; and increased economic activity related to Expo 2020.
- waheedabbas@khaleejtimes.com