Dubai property prices could fall up to 5pc

Dubai property prices are predicted to fall by up to 5 per cent in the coming year, as the market softens.

A new report from Cluttons reveals that apartment prices fell 0.8 per cent in the third quarter of 2015, with villa prices also dipping 0.5 per cent. This is the fifth quarter in a row of price drops, with Cluttons forecasting a continued drop of between 3 per cent and 5 per cent during the next 12 months.

The figures arrive after a year in which the market has softened, partly due to wider global economic trends and a natural moderation in values. Indeed, it is almost two years since the emirate introduced a Federal Mortgage Cap to deter speculative investors and cool down rapid price increases. Since then, "affordability" has become a subject of much debate.

Faisal Durrani, Head of Research, comments: "Several developers brought schemes to the market that they present as being “affordable” but true affordability remains a vastly underserved segment of the market. The authorities need to formalise the definition of affordable housing, in terms of those who could qualify and the type of housing that needs to be created, otherwise there is a real danger that the term ‘affordable’ will be permanently diluted."

Rising supply levels are also contributing to the general weakening of values, with 7,400 units scheduled for completion during 2016, 10,300 in 2017 and a further 13,600 in 2018.

Nonetheless, buy-to-let sales have continued, with apartment transactions up 6.6 per cent in the first nine months of 2015 compared to the same period in 2014.

Steven Morgan, Middle East CEO, says: "We’ve seen the popularity of off-plan property sales persist, partly fuelled by the fact they are often priced 20 per cent to 30 per cent lower than completed secondary stock, which in essence, might allow buyers to bypass some of the stringent lending criteria and also possibly avoid the need for a mortgage altogether."

"Generally, Dubai rents stabilised with no growth recorded during Q3," adds Cluttons. "However, in the city’s freehold areas average rents fell 3.2 per cent year-on-year with the biggest declines (6 per cent between January and September) recorded for low-end three-bedroom villas in the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa.""