DUBAI: Naseema Ahmed, a broker at Indus Real Estate LLC in Dubai, has been digging through her emails for leads after failing to sell a single home in the past month. She had been closing deals at a clip of about six a week since the market began recovering in 2012.
Dubai’s housing market is slowing after the world’s biggest price increases in 2013 prompted the United Arab Emirates Central Bank to restrict mortgage lending and the government doubled transaction fees.
Ahmed’s sales drought is good news for Dubai’s financial authorities, who have been trying to tame a market that has lurched between boom and bust since it was opened to foreign buyers in 2002.
Home values will rise by 12 percent in 2014 after surging by about 51 percent last year, said Steven J. Morgan, head of the Middle East division at broker Cluttons LLC.
“Since January, we have seen a plateauing as new regulations aimed at curbing growth have gone into effect,” Morgan said.
“There would have been cause for concern if we had continued to see the kind of price increases we saw over the last 18 months.”
Price growth is also slowing because recent increases have put homes out of reach for many buyers, Liam Bailey, head of residential research at Knight Frank LLP, said.
Dubai home prices rose 35 percent last year, the most in the world ahead of China and Taiwan, Knight Frank said in a research report. Bailey predicted a 10 percent gain in 2014.
Dubai’s property market has been defined by its steep rises and falls as developers of novelties such as palm-shaped artificial islands and the world’s tallest tower remade the desert sheikhdom into a hub for business and tourism. Home-price increases were among the world’s fastest in the years up to 2008 before the property bubble burst and values fell by as much as 65 percent.
When an improving economy sparked a rally beginning in 2012, the central bank and the government started looking at ways to limit the easy money and speculation that caused the previous bubble. Developers including Emaar Properties PJSC also imposed rules to prevent the so-called flipping of properties before they are built.
In October, the central bank capped the size of mortgages that banks can offer foreigners at 75 percent of the value of a first home priced at 5 million dirhams ($1.4 million) or less. UAE nationals were allowed a loan-to-value ratio of as much as 80 percent.
Other limits were applied to more expensive homes, investment properties and second residences. Borrowing for unbuilt real estate, a key driver of the last bubble, was capped at 50 percent.
“It’s good news that the market is slowing down rather than going ahead at the same pace and then having another big correction,” said Craig Plumb, head of Middle East research at Jones Lang LaSalle Inc.
“It’s exactly what the government wanted when it put these regulations in place.”
Residential prices rose 3 percent in the first quarter, compared with around 6 percent in the last quarter of 2013, according to a Cluttons report published on May 12. Prices are still 19 percent below their peak in 2008. Sales of single-family homes at Emaar, Dubai’s largest publicly traded developer, slipped 17 percent in the first quarter, the company said in an earnings statement Thursday.
It remains to be seen if the cooling measures taken so far will do enough to control price increases in a market bolstered by an improving economy and plans to invest $8 billion preparing to host the World Expo fair in 2020.
The emirate’s gross domestic product may have grown by 4.9 percent in 2013, Mohamed Lahouel, chief economist for the Dubai Department of Economic Development, said earlier this year. That would be the fastest pace since 2007, when the economy expanded 18 percent.
Banks are offering mortgage rates as low as 3.99 percent, compared with more than 9 percent before the property crash, said Warren Philliskirk, associate director at Mortgage International, a Dubai-based mortgage broker.
Authorities should consider further measures to discourage property speculation, Masood Ahmed, head of the International Monetary Fund’s Middle East and Central Asia Department, said this month.
“Such interventions tend to be relatively minor to start with because policymakers tend to be concerned about the level of impact they would have,” Knight Frank’s Bailey said. “If the aim is to slow price growth and not help prices decline, it’s quite a balancing process.”
The supply of homes under construction as well as new projects being started by developers will help temper prices. About 24,000 homes, or 6.5 percent of current housing stock, are set to be completed this year, Jones Lang said in a report last month. Keys for another 39,000 residences, mostly on the city’s periphery, are expected to be handed over to owners in the next two years.
Fallout from the 2008 crash still prompts caution among builders and lenders. Developments tend to be smaller, with a few hundred homes built in phases, compared with the blocks of thousands planned before the crisis. To limit flipping, most home builders now bar resale of homes before construction and before 40 percent of the value is paid, Jones Lang’s Plumb said.
Mortgage regulations may need to be revised further to encourage residents looking to move from rentals into home ownership, said Philliskirk of Mortgage International.
New rules “should incentivize first-time home buyers with a higher LTV [lone-to-value ratio] to allow them to get into the market,” he said.
“It’s for people who spent time in Dubai and want a family home to put down roots. The alternative is staying in rental accommodation, and rents will keep spiraling out of control.”
Ahmed, the broker at Indus, said buyers are pushing for lower prices and dropping out of talks when their bids are rejected by sellers.
“Before, buyers would have negotiated and raised their prices,” she said.
“Now most are just dropping the whole thing and moving on.”
The slowdown in prices may pave the way to a market in which values are set by local supply and demand rather than speculation, said Richard Paul, director of UAE residential valuations at Cluttons in Dubai.
“That would build the basis for solid and sustainable growth going forward based on economic growth and real demographic demand,” he said. “As soon as the world sees Dubai has got its act together and taken the bubble off the market, that’s going to encourage growth.”