Property developers in Dubai could be once again building more homes than the market can support, a new report by CBRE has suggested.
CBRE researchers estimate that developers in Dubai will complete about 17,000 new homes – most of which will be built in mega schemes on the outskirts of the emirate – this year, while another 65,000 homes are planned to be completed over the next four years.
The agent said that most new homes would be built in “secondary locations” such as Dubailand, Jumeirah Village Circle and Silicon Oasis.
The news comes in a week when the developers Emaar, Dubai Properties and Lootah Real Estate have announced the launch of 845 new homes on the outskirts of Dubai, prompted by rising house prices and rents.
“The residential development pipeline is again starting to swell, with an ever-increasing number of new projects being launched. While this pipeline is still far smaller than witnessed during the last cycle, it is nonetheless something to monitor carefully in the coming years, with a danger that further down the line supply could again start to exceed demand fundamentals,” said Matthew Green, the head of research in CBRE’s Dubai office.
With house prices and rents continuing to rise, more and more developers are making the decision to start work catering to what appears to be an undersupplied and highly lucrative market.
CBRE estimated that average housing rents in Dubai increased 2.8 per cent in the three months to the end of March, with apartments rising by 3 per cent and villas by 2.6 per cent.
The strongest sub-markets for apartments were Sports City, Downtown Dubai, JBR, International City and Dubai Silicon Oasis.
The report echoed recent findings from CBRE’s rival agent, Asteco, which found that average annual apartment rents increased by 5 per cent over the three months to the end of March while villa rents rose 3 per cent.
The increases mean that rents are on average now 22 per cent higher than they were a year ago, CBRE estimated.
The rising cost of living in the emirate is now starting to become a real concern for many residents, with rentals having risen by an average of 45 per cent during the past two years,” Mr Green said.
“With sustained demand for both occupational and investment properties, we anticipate that residential rental and sales growth will continue throughout 2014. However, we expect growth levels to be lower than 2013 performance as affordability becomes a more influential driver of property moves. We expect to see an increase in the flight to affordability, with occupiers starting to consider Sharjah and the Northern Emirates as a cost-sensitive alternative to Dubai,” he added.
The news comes as new government statistics revealed that the cost of living in the emirates had hit a new post-2009 high last month, driven by rocketing rents.
According to the National Bureau of Statistics, the average UAE consumer is having to spend 1.9 per cent more on goods and services than he did a year ago. And in Dubai, the Dubai Statistics Centre (DSC) reported that its consumer price index showed inflation has increased by 3 per cent compared to a year ago.
DSC said that housing and utility costs, which account for almost 44 percent of consumer expenses, climbed 4.8 per cent year-on-year and rose 0.4 per cent month-on-month.
Food and beverage prices, which account for 11 per cent of the basket, also rose 4.8 per cent from a year earlier and gained 1.2 per cent from a month earlier.
“Rising inflation in Dubai and at the national level is to be expected through the course of this year as the sharp increase in housing costs over the past couple of years feeds through to the official inflation indices,” said Khatija Haque, the head of research for the Middle East and North Africa at Emirates NBD.
lbarnard@thenational.ae
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