DUBAI – Looming oversupply and a lack of availability of mortgage are among the top challenges to a possible recovery in Dubai’s recession-hit real estate sector, said property broker Harbor Real Estate in its latest edition of the Harbor Report.
“An estimated 60,000 residential units and 30million square feet of office space are coming on stream by the end of 2011,” the report said. It said research conducted by Harbor indicates that, in the next two years, some 10,200 units will be released in Dubai Marina and Jumeirah Lakes Towers alone.
“With relatively high vacancy rates in both property sectors currently, the property scene is facing some significant oversupply challenges. Any student of economics 101 knows that, in time, equilibrium between supply and demand is eventually reached. The third variable to this overly simplistic equation is price.”
The report said that the recent quarter-on-quarter five per cent spike in prices for Dubai’s residential properties meant that; “for certain investors seeking certain property types, the price is just about right.” Harbor said the price trends in the first quarter “will bear testimony as to whether this is the beginning of a sustainable recovery or a minor blip in the stabilisation process.”
The report said demand for property throughout 2009 was also hindered by a lack of credit availability, tightening of lending policies and the inability of potential consumers to comply with such policies. “In 2010, the increase in flow of credit into the market place will be gradual at best.”
In addition to not having sufficient funds on hand for lending, mortgage providers and investment financiers are still not in a position to fully and confidently assess the level of risk they can prudently assume, mainly due to uncertainty which surrounds the risk inherent in their current loan portfolios, it said.
The report also said that the last 12 months were quite challenging for anyone wanting to obtain a mortgage in Dubai. In response to the global financial turmoil, banks had tightened their credit policies, reduced lending ratios and increased interest rates. “It appears that the worst may now be behind us and lenders are once again opening up their credit policies. While obtaining a mortgage is still not simple, and may not be for a while, lenders are now more willing to consider applications.” Interest rates are also on the way down. The average rate is now approximately 7.5 per cent, down from about 8.5 per cent a few months ago, it said.
