dubai house price index - colliers international...dubai house price index | first quarter 2014 |...

Dubai House Price IndexFirst Quarter 2014

Dubai House Price Index | First Quarter 2014 | Colliers International

Contents

About The Authors ……………………... 3

About The Index ………………………... 5

Executive Summery ……………………. 6

Overall factors

Influencing The Residential

Real Estate Market ………….......……... 7

Factors Influencing

The Residential Real

Estate Market in Q1 2014 ……………… 9

Forthcoming Supply …………………... 11

Alternative Analysis …………...........… 12

Apartment Index ……………………… 14

Townhouse Index ……………………… 15

Villa Index …………………………...… 16

2

Dubai House Price Index | First Quarter 2014 | Colliers International3

Ian Albert, BSc (Hons) MRICS

Regional Director | MENA

[email protected]

Colliers International

Colliers International is a global leader in commercial real

estate services, with over 15,800 professionals operating out

of more than 485 offices in 63 countries. Colliers

International delivers a full range of services to real estate

users, owners and investors worldwide, including global

corporate solutions, brokerage, property and asset

management, hotel investment sales and consulting,

valuation, consulting and appraisal services and insightful

research. The latest annual survey by the Lipsey Company

ranked Colliers International as the second-most recognized

commercial real estate firm in the world. In MENA Colliers

International has been providing leading advisory services

through its regional offices since 1996. Colliers International

currently has four corporate offices in Dubai, Abu Dhabi,

Riyadh and Jeddah.

About The AuthorsIan has an extensive background covering over 27 years in

the real estate industry working for both real estate

companies and real estate consultants. Over the years he

has acquired a range of multi-disciplinary skills, including;

investment strategy, acquisitions and disposals, property

management, development solutions and masterplan

analysis, valuations, market research, complex feasibility

studies and corporate solutions.

Ian has worked extensively throughout the United

Kingdom and The Middle East, North and Southern Africa

having been involved in projects in all of the Arabian Gulf

Countries, the Levant, North and South Africa GCC

countries plus Republic of Mozambique, Republic of

Namibia, Kingdom of Swaziland, Lesotho, Sudan, Egypt,

Lebanon, Syria and Jordan.

For the last 18 years Ian has been in the GCC region,

firstly as an Associate Partner with a consultancy firm,

then as the General Manager of a UAE focused Real

Estate Investment Company. For the last 13 years Ian has

lead the Valuation and Advisory teams of Colliers

International MENA offices.


Catherine Clarke BSc (Hons)

MRICS

Director | Residential Valuations

[email protected]

Colliers International

Colliers International is a global leader in commercial real

estate services, with over 15,800 professionals operating out

of more than 485 offices in 63 countries. Colliers

International delivers a full range of services to real estate

users, owners and investors worldwide, including global

corporate solutions, brokerage, property and asset

management, hotel investment sales and consulting,

valuation, consulting and appraisal services and insightful

research. The latest annual survey by the Lipsey Company

ranked Colliers International as the second-most recognized

commercial real estate firm in the world. In MENA Colliers

International has been providing leading advisory services

through its regional offices since 1996. Colliers International

currently has four corporate offices in Dubai, Abu Dhabi,

Riyadh and Jeddah.

Prior to joining Colliers International - Middle East,

Catherine was employed by a number of reputable

Chartered Surveying firms in the United Kingdom, where

she had predominantly been involved in carrying out

valuations for mortgage, executor, tax, audit, secured

lending and sales purposes. She has also been involved in

development appraisals for developers, financial

institutions and public bodies within the UK.

Catherine has been practicing in the UAE for six years and

is currently overseeing the Residential Valuation division

within Consultancy Services. This includes contract

accounts for 20 major local and International banks. In

addition to these contracts, the department provides

valuations for acquisition, audit, matrimonial and portfolio

purposes.

Catherine is also responsible for the implementation and

development of the Colliers International House Price

Index. Established in 2008 and was the first bank

supported index in the UAE.


About The IndexThe Colliers International House Price Index

(HPI) was established in January 2008 by Colliers

International and five leading banks and financial

institutions in the Emirate of Dubai to provide

statistics specifically designed to reflect the

average growth - decline rate of house prices

across certain foreign ownership areas of Dubai,

United Arab Emirates. The data that forms the

basis of the indices presented in this HPI has been

provided by all the member financial institutions

and relates to properties which have been

mortgaged through these institutions. The member

banks - financial institutions associated with the

Colliers International House Price Index are as

follows:

• HSBC Bank Middle East Limited

• Emirates NBD

• Standard Chartered Bank

• Amlak Finance

• Noor Bank

We have used the weighted average method to

construct the overall index. Based on our coverage

of 19 master developments in Dubai, weighting

has been apportioned on the basis of unit type

(Apartment, Villa or Townhouse). Apartments,

Villas and Townhouses have been weighted at

67%, 27% and 6% respectively in order to provide

an accurate representation of market trends. The

Recommended minimum sample size for this HPI

is 10 property transactions.


138

141

149

156

165

120 130 140 150 160 170

138

165

120 130 140 150 160 170

6

Dubai House Price Index: Year on Year

Q1 2013 / Q1 2014

Source: Colliers International

Dubai House Price Index: Quarterly

Q1 2013 / Q1 2014

Q1

2013

Q2

2013

Q1

2013

Q1

2014

6%

5%

2%

19%

Q3

2013

Q4

2013

Q1

2014

5%

Executive Summery

Overview

The overall quarterly index increased in Q1 2014,

reaching 165 index points compared with 156 in Q4

2013, registering a 5% increase.

Year on year the index increased 19% in Q1 2014

compared with Q1 2013.

67%6%

27%

Apartments Townhouses Villas

Breakdown of Transactions

Q1 2014


Factors Influencing the

Residential Real Estate

Market

Availability of Finance

Unrest in the Arab Region

Increased Number of

Cash Transactions

Improved Investor & End-User Sentiment

Tax-Free Investments

Better Economic Outlook

Improved Status of Complete

Developments

7

Overall Factors Influencing The Residential

Real Estate Market


Factors Influencing

the Residential

Real Estates

market in Q1 20141. Increased Rental Rates

The escalating rental costs in prime locations have

led many tenants to relocate to more cost effective

locations such as Jumeirah Village, Dubai Sports

City and Discovery Gardens. As tenant demand

increased so has the attraction to investors with the

overall impact being a consecutive increase in

rents and sale prices. Motor City particularly, has

seen increased activity.

2. Mortgage Cap Announcement

In the last quarter of 2013 a new mortgage cap rule

was confirmed by the UAE government, taking

effect in December. The new rule included a

mortgage limit with a loan to value ratio of 75%

and 80% for expatriates and UAE nationals

respectively for properties below Dhs 5 million.

Properties over Dhs 5 million in value were

limited to 65% of the value for expatriates and up

to 70% for nationals. In Q3 2013, prior to the new

law taking effect the expectation of the new

mortgage cap put pressure on the market, with

investors accelerating their acquisitions in an

attempt to take advantage of the mortgage finance

available at that time (85% for both expatriates

and UAE nationals). This increase in demand by

investors caused a significant increase in values

and also an opportunistic increase in asking prices

beyond the market values. In Q4 2013 the

unrealistic increase in asking prices together with

an increase in transfer fees may have discouraged

buyers causing a drop in demand decreasing the

total volume of transactions by 41% (from 866 to

507). In Q1 2014, purchase and asking prices

continued to increase, however, the volume of

properties actually transacted fell again below Q4

2013 totals. It appeared that the government

measures to stabilize the property market were

starting to have an impact. (Refer to 3.)


3. Increase in Transfer Fees

The Dubai Land Department doubled the transfer

fees for all property sales, excepting the first

direct sale from developer to buyer which will

stay at the previous rate. Transaction costs now

consist of the transfer fee to the DLD (4%),

commission to the agent (2%), NOC fee to the

developer (AED 1,500) and loan application fee to

the bank (between AED 2,000 and AED 15,000).

The increase in the transfer fees appears to be

designed to temper the increase in prices.

4. Dubai Expo 2020 Bid

The anticipation of the Dubai expo 2020 bid

caused an increase in demand for residential real

estate and a spike in asking prices for both land

sites and existing properties in Q3 2013. In Q1

2014, four months after the successful bid was

announced, asking prices kept increasing causing

a 5 to 10% gap between asking prices and actual

sale prices. However, in Q1 2014 the total number

of mortgage transactions decreased by 48% in

comparison to Q3 2013. This could be due to the

unrealistic increase in asking prices and

purchasers unable/unwilling to meet these

escalated prices, especially with the doubled

transfer fees. (Refer to 3.)


10,470

41,391

56,974

22,233

20,647 20,401

13,437

22,728

14,251

5% 18% 21% 7% 6% 5% 3% 6% 3%

2006 2007 2008 2009 2010 2011 2012 2013 2014

10

5. Forthcoming Supply

At the end of 2012, there were an approximate 408,500

residential units in Dubai. At the end of 2013, the total

number of residential units increased by 6% adding

approximately 22,700 units compared to an increase of

approximately 13,400 units in 2012. By the end of

2014, the total number of residential units is expected

to increase by 3% adding approximately 14,200 units.

At the end of 2012, there were an approximate 167,800

freehold Units. At the end of 2013, the number of

freehold units increased by 11% reaching an

approximate 186,900 units to add approximately

19,100 units and constitute 43% of the total number of

residential units in Dubai. By the end of 2014, the total

number of freehold units is expected to increase by 6%

adding around 10,300 units.

Additional Freehold Units


Forthcoming Supply

8,415

39,315

50,685

15,754

13,975 12,383 9,880

19,118

10,587

2006 2007 2008 2009 2010 2011 2012 2013 2014

Additional Supply


110

165

0

25

50

75

100

125

150

175

200

225

250

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012 2013 2014

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012 2013 2014

11

Alternative Analysis

Real Estate Returns

In Q1 2014, Dubai Financial Market performed

positively, increasing 40% of its value while the HPI

has seen a 6% increase in performance.

From the following chart the HPI has, since its

inception in Q1 2007, outperformed the DFM index. In

this regard, a residential investment purchased in Q1

2007 has to date, over the seven year period, generated

returns of circa 65%. A similar investment in the DFM

for the same period has generated returns as high as

10% in Q1 2014.

DFM / HPI Comparison

Investment Performance


DFM / HPI Comparison

Volatility of Returns - Quarter on Quarter

DFM HPI


DFM HPI


Price to Rent Ratio

To provide further analysis of the residential real estate

market, Colliers International introduced the concept of

Price-to-Rent Ratio (PRR). This ratio is widely used as

an indicator of the fundamental value, generated from

rental income, of real estate assets.

The ratio simply measures the relationship between the

prices (taken from the HPI) of purchasing a residential

property and the rental income. A high property price

associated with a flat rental market (as in most western

markets) increases the value of the ratio, indicating that

property values are expensive; the higher the ratio is

away from its long run average indicates the onset of

an above the average market price. However, if rents

are falling there would be the expectations of a greater

fall in property prices as investors receiving less

income would pay less for residential property.

For the purpose of this analysis, Q2 2007 is assumed as

the base quarter and the ratio is rebased at

1 (Q2-2007=1).

Price to Rent Ratio


The ratio, in Q1 2014 has experienced an increase,

standing at 1.35 compared to 1.34 in Q4 2014. The

long term average (excluding the mid-2008 boom)

stands at 1.31, meaning that in Q1 2014 the average is

3.1% above the long term average. When comparing

the ratio during this quarter (Q1 2014) to the ratio in

Q1 2013, there has been a 7.2% decrease, indicating a

decline in prices

1.31 1.31

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012 2013 2014


129

149

120 130 140 150 160 170

Q1

2013

Q1

2014

15%

129

133

142

146

149

110 120 130 140 150 160

13

Apartment Index

Year on Year

The Annual Overall Apartment Index increased 15% in

Q1 2014, compared with Q1 2013, increasing to 149

points from 129 points.

The blended average rate per ft2 for apartments in

Dubai in Q1 2014 was AED 1,504 (AED 16,189 per

m²) compared with AED 1,308 per ft2 (AED 14,079

per m²) in Q1 2013.

Apartment Index: Quarterly

Q1 2013 / Q1 2014


Apartment Index: Year on Year

Q1 2013 / Q1 2014

Quarterly

The Quarterly Overall Apartment index grew by 2% in

Q1 2014 compared to a 3% increase in Q4 2013.

The blended average rate per ft2 for apartments in

Dubai in Q1 2014 was AED 1, 504 (AED 16,189 per

m²) compared with AED 1,479 (AED 15,920 per m²)

in Q4 2013.

2%

3%

7%

3%

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014


131

136

133

143

152

110 120 130 140 150 160

131

152

110 120 130 140 150 160

Q1

2013

Q1

2014

17%

14

Townhouse Index

Year on Year

The Annual Overall Townhouse Index increased 17%

in Q1 2014 compared with Q1 2013, increasing to 152

points from 131 points.

The blended average rate per ft2 for townhouses in



per m²) in Q1 2013.

Townhouse Index: Quarterly

Q1 2013 / Q1 2014


Townhouse Index: Year on Year

Q1 2013 / Q1 2014

Quarterly

The Quarterly Overall Townhouse index saw a 6%

increase in Q1 2014 compared to an 8% increase in Q4

2013.

The blended average rate per ft2 for townhouses in



per m²) in Q4 2013.

6%

8%

-2%

4%

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014


160

162

170

183

205

150 160 170 180 190 200 210

160

205

140 150 160 170 180 190 200 210

Q1

2013

Q1

2014

28%

15

Villa Index

Year on Year

The Annual Overall Villa Index increased 28% in Q1

2014, compared with Q1 2013, increasing to 205 points

from 160 points.

The blended average rate per ft2 for villas in Dubai in

Q1 2014 was AED 1,480 (AED 15,931 per m²)

compared with AED 1,155 per ft2 (AED 12,432 per

m²) in Q1 2013.

Villa Index: Quarterly

Q1 2013 / Q1 2014


Villa Index: Year on Year

Q1 2013 / Q1 2014

Quarterly

The Quarterly Overall Villa index saw a 12% increase

in Q1 2014 compared to an 8% increase in Q4 2013.

The blended average rate per ft2 for villas in Dubai in

Q1 2014 was AED 1,480 (AED 15,931 per m²)

compared with AED 1,326 per ft2 (AED 14,273 per

m²) in Q4 2013.

12%

8%

5%

2%

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

About Colliers International

Colliers International is a global leader in commercial real estate services, with over 15,800

professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a

full range of services to real estate users, owners and investors worldwide, including global corporate

solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation,

consulting and appraisal services and insightful research. The latest annual survey by the Lipsey

Company ranked Colliers International as the second-most recognized commercial real estate firm in the

world. In MENA Colliers International has been providing leading advisory services through its

regional offices since 1996. Colliers International currently has four corporate offices in Dubai, Abu

Dhabi, Riyadh and Jeddah.

colliers.com

Copyright © 2013 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been

made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are

encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

$2.1billion in

annual revenue

1.46billion square feet

under management

15,800professionals

and staff

485 offices in

63 countries on

6 continentsUnited States: 146

Canada: 44

Latin America: 25

Asia Pacific: 186

EMEA: 84

Primary Authors:

Ian Albert, BSc (Hons) MRICS

Regional Director | MENA

[email protected]

Catherine Clarke, BSc (Hons) MRICS

Director | Residential Valuations

[email protected]

Tel +971 4 453 7400

Fax +971 4 453 7401

Colliers International | Dubai

Al Shafar Tower 1

Tecom, Dubai | UAE

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