Dubai’s Property Glut Could Mean Two More Years of Price Drop
(Bloomberg) -- Dubai home prices will likely extend declines this year and next as the market works to clear an oversupply that’s been a drag on values since 2014, according to property broker JLL.
“We’re really not at the bottom yet,” Dana Salbak, head of Middle East research at JLL, said on Monday at a virtual event. “We’re likely to see single-digit declines between 5% to 8% over the next year given that supply stays under control and developers continue to phase out their projects rather than flood the market.”
A property glut and faltering demand have driven Dubai home prices down by more than 30% since the market peaked seven years ago, a decline made worse by the coronavirus pandemic.
The government has responded by setting up a committee to manage supply and demand as some of the city’s largest developers continued with construction. Some developers have been calling for a moratorium on new projects in Dubai, the Middle East’s tourism and financial hub that’s grown reliant on real estate to power its economy.
Average home prices in Dubai fell 8% last year. Rents slumped by 12% and are now about 4% below the lowest level reached in 2010.
But the market has been seeing some positive signs. The pace of price decreases has slowed and demand has been ticking up as end-users take advantage of lower prices and favorable payment plans and interest rates, said JLL’s Salbak.
Despite years of declines, home prices are still about 20% above the levels reached in 2010, when a property crash following the global credit crisis in 2008 cut real estate values by nearly half.
The supply of new homes has continued to pour in, with 39,200 houses delivered last year, mostly during the second half. JLL estimates construction on 53,000 residential units will be completed in the city this year.
“There is a lot of supply in the pipeline, but that’s likely to be phased out,” Salbak said. “We’re seeing materialization rates around 40%, so a lot of projects are being put on hold and being delayed.”
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