Fitch: Dubai real estate faces mixed near-term performance
Dubai real estate prices and rentals are likely to remain under pressure for the rest of 2017 but performance is likely to be fragmented, with prime assets still showing some resilience while lower-tier properties outside the centre will have price and rental declines, Fitch Ratings says.
The risk of a property shock is small due to strengthened market regulations, lower bank financing of residential transactions than during the 2008 crash, and robust non-oil sector growth resulting in more resilient residential and office segments.
Fitch’s analysis of Dubai Land Department figures shows activity accelerated in 2H16 after a slow start to the year. The total value of deals in 2016 fell 2% and the number of transactions dropped 8% compared to 2015. Mortgage transaction volumes exceeded cash transactions for the first time since 2012, accounting for 50% of transaction values, but this is still below the post-crisis peak of 65% in 2011.
According to Fitch, many of Dubai’s master developers have significantly reduced their debt compared to pre-crisis levels, giving them more flexibility to weather market cyclicality, and the authorities have taken action to reduce risk. This includes increasing the real estate registration tax to limit speculation, making developers deposit a portion of construction costs in escrow, and reducing the maximum loan-to-value ratio on residential property purchases.