Dubai property prices set to slip further

dubai — Property prices and rentals in Dubai will continue to decline due to oversupply and VAT impact until Expo 2020 when the emirate will see more business activity, according to a study by international ratings agency S&P.

Sapna Jagtiani, S&P’s credit analyst for corporate and real estate ratings, said there will be gradual decline of 10 to 15 per cent in Dubai’s property prices and rentals over the next two years and the recovery will also be gradual from 2020 when the World Expo will begin.

“In 2017, Dubai residential property prices and rents declined by 5-10 per cent, as we expected. We believe this correction will continue at least for this year and next, before prices stabilise in 2020 at the earliest. How much stimulus Expo 2020 Dubai provides remains to be seen, but market players remain hopeful,” she said during a media brief on Tuesday. According to a JLL report released in January, 570,000 units of new supply could enter the market by 2020, representing an average annual increase of eight per cent. Citing an Oxford Economics study, JLL says Dubai’s population is expected to grow an average of three per cent per annum. This suggests that market absorption rates will be less than the levels of new supply and thus a large number of residential units may be left vacant.

Jagtiani expect a continued decline in residential real estate prices as well as decreasing rentals for the retail and residential segments.

“The downward trend will mostly reflect promised new supply coming onto the market in the next two to three years. Hotels, too, will remain under pressure to accept much lower average daily room rates to maintain occupancy levels. This sector runs a serious risk of overbuild, the effects of which would be felt post-Expo,” she added.

According to S&P, residential prices and rents will keep falling until 2020, the Expo year. In 2020, however, the sector could well start to benefit from the potential increase in economic activity and positive business sentiment attached to Expo; the expected 25 million or more visitors and floods of new residents to Dubai should support the market.

She, however, warned that there could be a speculative surge in prices, devoid of any demand and supply mismatch.