Hopes that political turmoil in the Middle East might boost the property market in Dubai have faded as the latest real estate report shows that prices are still falling.
Residential property values fell 1.2% in May compared with the previous month and rents fell by 1% according to the report from Deutsche Bank.
‘Despite talks of renewed interest in real estate following regional unrest, there is no visible sign of an improvement,’ said analysts Nabil Ahmed and Athmane Benzerroug in the report.
‘Even if we believe the worst of the downtrend is now behind, new supply, lack of homebuyers’ appetite and anaemic transaction activity point to further weakness,’ they added.
Property prices in Dubai, the second largest of the United Arab Emirates’ seven sheikhdoms, have dropped 64% since the peak of the market in the middle of 2008, while rents have fallen 55%, according to Deutsche Bank.
Asking prices dropped in most parts of Dubai with the exception of apartments in Palm Jumeirah, Jumeirah Beach Residence and Sports City and villas in Emirates Living, Palm Jumeirah. Prices fell 2% in Jumeirah Lake Towers, The Greens and Arabian Ranches.
The report also shows that rental yields were 7.6% in May, unchanged from a month earlier and up from 7% a year ago, according to the report.
‘Although the pace of decline has slowed of late, prices have continuously declined for 18 months in a row. We do not see an improvement in fundamentals that could trigger a recovery. The supply overhang looms large, homebuyers lack appetite, transaction volumes remain anaemic, banks are cautious lenders and international investors are still wary of UAE real estate,’ the report added.
Meanwhile, there are hopes that more lending will help the beleaguered property market. HSBC said it is making it easier for homebuyers to get loans in Dubai. The Dubai based unit of Europe’s biggest bank, announced that it has reduced interest rates on 25 year mortgages by 76 basis points to 5.49% and lowered its down payment requirements.
Mortgage financing activities in Dubai ground to a halt soon after the global credit crisis. Mortgage demand has plummeted since the days of Dubai’s property boom, when speculators frequently bought yet-to-be- built homes and sold them at a profit before a single brick was laid. These days most loans are for completed properties in developments with infrastructure and facilities.