Surprise uptick in Dubai property prices as off-plan sales eclipse resale in April

Off plan accounted for 72.1 per cent of transactions in April compared to only 27.9 per cent for resale.

Dubai property prices recorded a slight unexpected uptick in April as off-plan sales registrations eclipsed resale.

According to Property Monitor data, prices in April stood at Dh866 per sq ft, 0.49 per cent higher than the Dh862 per sq ft recorded in March. Nevertheless, compared to the market peak in September 2014, April prices were down nearly 30 per cent from, and 10.4 per cent away from the market trough of April 2009. Year-on-year, prices have fallen by 8.3 per cent.

“As anticipated, the volume of closed transactions in April was significantly lower than last month as mobility restrictions impacted financing and purchase decisions. A total of 1,825 transactions were recorded during the month, down 47 per cent from March,” Property Monitor said in its monthly market report.

The new data comes as the property market faced severe challenges in the wake of Covid-19 outbreak amid a surge in distress sales and oversupply with the prospects of as many as 50,000 plus units ready for handover this year as per pre-pandemic forecast. While in the first three months of this year about 5,000 new residential units were completed compared to 6,900 for the same 2019 period, the market is in a state of turmoil due to softening demand worsening the demand-supply imbalance, analysts said.

While there is no dearth of investors looking for distressed deals during the lockdown, many are taking a cautious approach, expecting the prices to bottom out, market watchers said.

The reversal in the downward trend in the index value, and therefore prices, can be attributed to the disproportionate level of off plan transactions recorded – off plan accounted for 72.1 per cent of transactions in April compared to only 27.9 per cent for resale, Property Monitor report said.

“Historically, this transaction split has averaged 55 per cent off plan to 45 per cent resale. Off plan properties command higher ticket prices than resale as developer incentives including attractive payment plans, discounts and fee waivers are often built into the sales price,” it said.

The report said the outlook for prices would be closely watched by brokers, developers, lenders and surveyors alike for any evidence of the renegotiation of existing deals and the inevitable activities of short term bargain hunters. “Any of these short term price movements would not necessarily point to a sustained, more rapid or longer term softening of prices. It is too soon to judge the longer term impacts of lockdown and the effectiveness of the mitigation measures being adopted around the globe. There is also evidence of an upswing of mortgage financing activity, with physical inspections now resumed and expediting bank lending approvals.”

The Property Monitor Dynamic Price Index tracks trends of residential property prices throughout 42 key communities in Dubai and is indexed to a base period of January 2008. At an emirate-wide level, the index value for April 2020 increased by 0.59 index points to 120.95 from 120.36 in March, representing a month-on-month increase of 0.49 per cent.

“This is an improvement on the previous 12 months to April 2019 where a year-on-year decline of 9.7 per cent was recorded. The current figures do however serve to emphasise once again that short term movements can be misleading. The longer term trend of median prices is the metric that can and should be relied upon. In all likelihood, we are amid an artificial and temporary easing of price declines due to the weighting towards off plan, lower volume of transactions recorded, and the overall slowdown in market activity,” said the report.

This article was originally published in Khaleej Times.