According to international real estate consultancy Cluttons, following an exceptional year in 2013, Dubai's residential property market is showing signs of more modest growth in the first quarter of 2014, as regulations begin to take effect.
The economic growth and frenzy in the lead up to the bid announcement, led to strong demand for residential property in 2013 and helped lift average values by 51% during the course of the year. But a slew of regulations aimed at cooling the pace of growth are starting to peg back rate acceleration. Residential values expanded by 3% in Q1, after rising by almost 6% in Q4 2013.
Cluttons Chief Executive of the Middle East Steve Morgan said, "The implementation of the Federal Mortgage Cap, along with measures such as the doubling of the property registration fee to 4%, and the ban on off-plan re-sales until handover by some developers, have positively influenced the market's behavior. This has been reflected in the gradual slow down in price acceleration, which we view as a normalization of the residential market."
Data appears to point to the introduction of the Federal Mortgage Cap in December 2013 as having the most significant impact on the rate of price acceleration.
Morgan added, "The increased size of deposits means that property options available to mortgaged buyers is likely to be restricted to the lower end of the property spectrum and has already had an impact on transaction volumes. We expect the transition from rented property to owner occupation to take longer as deposits are amassed, which is translating into a slowdown in the number of deals being recorded."
The report reveals that the reduction in end users in the market also creates an opportunity for institutional investors to swoop on the market while prices stabilize and domestic demand ebbs to an extent.
"We have already begun to see the return of institutional activity, which will help to further diversify the city's long term demand base, following the AED 6.9 billion investment by Chow Tai Fook Endowment Industry Investment Development (Group) Ltd in the purchase of serviced apartments, high-end residences and two five star hotels at the Dubai Pearl scheme. We anticipate there will be more headline investment deals as the year progresses."
According to the report, in addition to stabilizing capital growth, the regulations may prove beneficial to the lettings market as households may have no choice but to rent for longer. Rents still currently stand at 16% up on this time last year, with values driven by the rapid rebounding of the economy and increased levels of job creation.
"It's too early to assess what impact, if any, the supply pipeline will have on the longer term performance of the rental market. In the near term, factors such as affordability and the ongoing delivery of new schemes will dampen the speed at which rents rise," said Morgan.