Confident sales, buoyant rentals – a Dubai Market Update

A mood change has been going around investors worldwide in the last couple of months. The current recovery of the global bourse has boosted investors’ moods, and banks in stabilising countries resumed lending once more, even though with a slow start. This optimistic effect has also caught the local stock markets. Much like the oil price rally, Dubai’s stock market has greatly recovered over the last quarter of 2009. Instead of cutback discussions in coffee breaks, there is talk of confidence and cheer. The government has also caught on this optimistic trend.

This optimism has also flowed through to the property market. Residential sales at Hamptons have had an increase in viewings and enquiries not just from undecided but also serious buyers from May to mid-June, and a substantial increase in deals. Many others have also reported closing deals during the time.

Real estate funds are also on the prowl in search of good deals. These sentiments have led some sellers to pull their properties out of resale in anticipation of higher prices by the end of 2009. Others, however, have increased asking prices (refer to ‘Average Price PSF’ graph) and won’t negotiate. A lack of real-time transaction data has caused many to ratify prices were on the rise in the past couple of months.

Hamptons International favours cautioning that these rises signify more of a stabilisation in asking prices and successful transaction volumes do not yet yield enough data to confirm that there is a general recovery of Dubai property prices. What has been called price increases by some, we’d rather say is a consequence of the fading of distress prices which characteristically are much lower than the normal market rate.

The experienced price increase is simply due to the fact that prices are actually returning to more average levels due to a return to normality.

Dubai properties now offer a gross yield return ranging from 5.5% to 6.5% in terms of current yield returns. In comparison to the gross yield, net yield is around 1.5% lower. These rates can also be found in other major cities such as London and New York and, on a slightly lower note, Hong Kong as well as Singapore. Thus, we think it should be challenging for prices to go up further in the interim. Hamptons International hopes the optimism of sellers prodding up the prices should not affect the buying momentum of savvy cash rich investors, critical to set a long expected general improvement in motion for the property market by 2009’s end.

When it comes to renting, Hamptons reports the rental drop being experienced has indeed drastically slowed down in Dubai in the past couple of months, fuelled by a number of factors. Landlords are becoming ever more creative in their efforts to attract prospective tenants. For example, some have offered free bonus month rental in flats for rent in Dubai-based Discovery Gardens on 12-month contract rental deals. Abu Dhabi workers also aided the stabilisation of these rental prices by acquiring leases in new Dubai areas such as the abovementioned Discovery Gardens and Dubai Marina.

Thanks to those formerly living in Ajman and Sharjah, extra rental demand in Dubai has also been felt at the lower end of the market. The current plunge in rental prices have also been reported to be taking place in Ajman, Sharjah and Abu Dhabi main island to a lesser extent.

Little movement is expected during summer: substantially fewer transactions since most sellers postpone sale agreements to the end of 2009 in view of the possible price increases to occur then. Most buyers are also away on holidays and unlikely to close deals before the Eid holiday. We expect properties in Dubai Marina to either hold their prices or drop slightly during the summer vis-à-vis renting.