Is Oversupply Harming Dubai Realty?
Despite various significant initiatives and broad-based recovery in oil prices, property prices in Dubai are under pressure mainly due to rising volumes of supply. Also, with transactions running at approximately 25 per cent lower rates on a year-on-year basis, launches by developers have also slowed down.
However, there is still liquidity in the construction and real estate sectors despite interest rate rise, according to the Central Bank data. This indicates that for end-users and developers, deal access remains unlike the first boom-bust scenario in 2008-10, when credit was frozen for a while. According to analysts, while the level of mortgage demand was to drop, in the first six months of the current year, mortgage activity is seen to have remained unchanged, indicating a stable demand along with smooth credit flow.
The data also clearly show that at the luxury end of the segment, more than 65 per cent of the transactions are occurring in the secondary market which is in line with the international norms indicating that speculative trends are mostly over. In fact, for developers, price correction that has taken place makes it unlikely to add stock at current levels.
To move up the real estate chain in terms of larger spaces, families have taken advantage of the reduced rents. This has been a trend in suburban areas which indicate higher level of absorption than the standard levels.
For analysts, investors and end-users, the cause for concern is the supply dynamics. While in the luxury segment, the rate of projects launched has reduced significantly, on an overall basis, the reduction in launches indicates supply fears that have been built into pricing levels are exaggerated. Currently, developers don’t have much of an incentive when it comes to stepping up the pace of construction as there is less competition in the market owing to smaller developers calling it quits or have consolidated. Alongside, the rising material and labour costs are also to blame for such a scenario.
The shift towards a secondary market which is already been seen in the luxury segment will continue as the market heads towards balance in inventory clearing mechanisms to move forward to developer portfolios. In the latter half of the year, for investors, the stimulus packages and incentives offered by the government will make the demand curve go up.