Dubai House Price Index Fourth Quarter 2015
Index Points Index Points Executive Summary Overview DUBAI HOUSE PRICE INDEX: QUARTER ON QUARTER The overall quarterly index registered a 3% decrease in Q4 2015, decreasing from 148 index points to 144 index points. The blended average rate for residential property in Q4 2015 was AED 1,283 per sq ft(aed 13,810 sq m) compared to AED 1,318 sq ft (AED 14,187 sq m) in Q3 2015. 175 170 165 160 171 167 152 148 144 1% -3% -9% -3% -3% Q4 Q1 Q2 Q3 Q4 2014 2015 DUBAI HOUSE PRICE INDEX: YEAR ON YEAR The Annual Dubai House Price Index registered a 16% Y-O-Y decrease in Q4 2015. The blended average rate for residential property in Q4 2015 was AED 1,283 sq ft (AED 13,810 sq m) compared with AED 1,524 per sq ft (AED 16,404 sq m) in Q4 2014. 175 170 165 171 160 144-16% Q4 2014 Q4 2015 2
TOP 5 DEVELOPMENTS BY VOLUME OF TRANSACTIONS Q4 2015 BREAKDOWN OF TRANSACTIONS BY PROPERTY TYPE Q4 2015 12% 10% 8% 6% 4% 10% 8% 7% 6% 6% 26% 15% Q4 2015 59% 2% 0% Dubai Marina The Springs Jumeirah Lakes Towers Downtown Dubai Jumeirah Park Dubai Marina recorded the highest number of transactions in the HPI, equating to 10% of the total transactions. The Springs obtained an 8% share of the total transactions followed by Jumeirah Lakes Towers at 7%. Both Downtown Dubai and Jumeirah Park obtained a 6% share. TOP 5 DEVELOPMENTS BY DECLINE IN SALE PRICE YEAR ON YEAR Apartments Townhouses Villas 0% -5% -10% -15% -20% -25% -30% The Villa Dubai Marina The Views Downtown Dubai The Springs -13% -13% -16% -15% -24% The Villa development saw the largest year on year decrease, (24%), while Dubai Marina recorded the second largest decrease (16%) over the period Q4 2014 to Q4 2015. 3% 5% 3
Index Points Sample Size Factors Influencing the Residential Real Estate Market Over 2012 to 2013, the Dubai residential real estate market registered a growth of 50% reaching 156 index points in Q4 2013, compared to 104 index points in Q4 2011. In 2014 the index increased by a further 10%, to reach 171 points in the last quarter of 2014. Over Q1 to Q4 2015 the HPI registered 14% decrease from 167 to 144 index points. The total number of transactions decreased 11% over the same period, from 438 to 389 transactions in Q4 2015. Compared to Q2 2008 (the peak of Dubai s residential real estate market), the total volume of transactions remains 35% lower in Q4 2015, highlighting the successful measures introduced by the government to dampen property speculation. Index Points vs. Sample Size 175 600 170 165 500 160 400 300 200 100 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 Index Points Sample Size 1. Cost of Buying Property 0 With the implementation of the mortgage cap by the Central Bank in 2013 and the increase in transfer fees by the Dubai Land Department in 2014, the cost of buying property increased significantly. In some cases the cost doubled, such as in cases of over AED 5 million villas. These regulations were implemented back then to safeguard the market. They appear to have been successful. The following graph is a comparison of the cost of buying a AED 2 million apartment and a AED 6 million villa in 2013 and today. Following the increase in transfer fees and the implementation of the mortgage cap, the average cost of buying an apartment increased by 63% from AED 381,500 in 2013 to AED 621,500 today, while the average cost of buying a villa increased by 116% from AED 1,141,500 to AED 2,461,500. OVERALL COST INCREASE 2013 / 2016 Villa 116% 1,141,500 2,461,500 Apartment 63% 381,500 621,500-500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 Cost (AED) 4
Oil (USD / Barrel) HPI Factors Influencing the Residential Real Estates market 2. Oil Prices Since Q3 2014 oil prices have recorded a significant decline of 61% approximately, the price per barrel dropped from around USD 94 per barrel in Q3 2014 to around USD 37 per barrel in Q4 2015. In Q4 2014 oil prices drastically decreased by 43% to land at USD 54 per barrel compared to USD 94 per barrel in Q3 2014. On the other hand, the HPI was stable in the period from Q2 to Q4 2014 standing at 171 index points in Q4 2014, however, in Q1 2015 we noted a 2% decrease followed by another 9% and 3% in Q2 and Q3 2015 respectively. In Q4 2015 the Dubai House Price Index decreased by another 3% to stand at 144 index points. The following graph shows the impact of oil prices on Dubai s residential real estate market. Oil Prices vs. HPI 120 100 500 400 80 300 60 40 200 20 156 165 170 170 171 167 152 148 144 100 0 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 HPI (Index Points) HPI (Volume of Transactions) Oil Prices 5
Additional Units Additional Units Forthcoming Supply In 2015 the occupancy level for both owner occupied and rented properties in Dubai was 88%. Colliers projections estimate that by the end of 2016, occupancy levels are expected to stay at 88% as demand and supply are expected to grow side by side. By 2020 the number of household units supplied is estimated to increase by an additional 16% adding approximately 73,300 units to the market. However, demand is also estimated to increase by 28% (approximately 111,100 units), adding further pressure and potentially leading to an undersupplied market. At the end of 2015, there were approximately 212,300 freehold Units. In Q4 2016 the number of freehold units is expected to increase by 7%, reaching an estimated 227,500 units, adding around 15,200 units and this constitutes 47% of the total number of residential units in Dubai. In 2019, the total number of freehold units is expected to increase by another 20% adding around 43,100 units to the market. Demand vs. Supply 2014 / 2020 600,000 100% 500,000 95% 400,000 90% 300,000 85% 200,000 80% 100,000 75% - 2014 2015 2016 2017 2018 2019 2020 Demand Supply Occupancy Levels 70% Additional Freehold Units 60,000 50,000 40,000 39,315 50,685 30,000 15,754 20,000 10,000 8,415 13,975 12,383 9,880 19,118 10,587 14,760 15,211 15,096 12,802-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 6
Alternative Analysis Real Estate Returns In Q4 2015, Dubai Financial Market registered a 12% decrease of its value while the HPI has seen 3% decrease, standing at 144 index points. DFM / HPI Comparison Volatility of Returns - Quarter on Quarter The second chart shows that 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 eight years period, generated returns of circa 44%. A similar investment in the DFM for the same period has generated 16% in losses in Q4 2015, down from a 10% recorded in Q4 2014. 60% 40% 20% 0% -20% 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 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015-40% -60% -80% DFM HPI DFM / HPI Comparison Investment Performance 250 225 200 175 125 100 75 50 25 0 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 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015 DFM HPI 7
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. 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). The ratio in Q4 2015 has seen 2.1% decrease compared to Q3 2015, standing at 1.32. The long term average (excluding the mid-2008 boom) stands at 1.335, meaning that in Q4 2015 the average is 1% below the long term average. When comparing the ratio during this quarter (Q4 2015) to the ratio in Q4 2014, there has been a 7.1% decrease. Price to Rent Ratio 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 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 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ratio LTA 8
Index Points Index Points Apartment Index APARTMENT INDEX: YEAR ON YEAR 160 Year on Year The Annual Overall Apartment Index decreased 13% in Q4 2015 compared to Q4 2014, decreasing to 136 points from 156 points. The blended average rate per sq ft for apartments in Dubai in Q4 2015 was AED 1,376 (AED 14,808 per sq m) compared to AED 1,582 per sq ft (AED 17,028 per sq m) in Q4 2014. 125 156 136-13% Q4 2014 Q4 2015 Quarterly The Quarterly Overall Apartment index decreased 5% in Q4 2015. APARTMENT INDEX: QUARTERLY 160 The blended average rate per sq ft for apartments in Dubai in Q4 2015 was AED 1,376 (AED 14,808 per sq m) compared to AED 1,446 (AED 15,570 per sq m) in Q3 2015. 156 143 143 136 125 1% -1% -8% 0% -5% Q4 Q1 Q2 Q3 Q4 2014 2015 9
Index Points Index Points Townhouse Index Year on Year The Annual Overall Townhouse Index decreased 11% in Q4 2015 compared to Q4 2014, decreasing to 134 points from 151 points. The blended average rate per sq ft for townhouses in Dubai in Q4 2015 was AED 1,067 (AED 11,481 per sq m) compared to AED 1,194 per sq ft (AED 12,853 per sq m) in Q4 2014. Quarterly The Quarterly Overall Townhouse index saw a 4% increase in Q4 2015 compared to a 3% decrease in Q3 2015. The blended average rate per sq ft for townhouses in Dubai in Q4 2015 was AED 1,067 (AED 11,481 per sq m) compared to AED 1,025 (AED 11,038 per sq m) in Q3 2015. TOWNHOUSE INDEX: YEAR ON YEAR 125 151 134 Q4 2014 Q4 2015 TOWNHOUSE INDEX: QUARTERLY 125 151 133 129-11% 134 120 115-8% 0% -11% -3% 4% Q4 Q1 Q2 Q3 Q4 2014 2015 10
Index Points Index Points Villa Index VILLA INDEX: YEAR ON YEAR 250 Year on Year The Annual Overall Villa Index decreased 22% in Q4 2015, compared to Q4 2014, decreasing to 167 points from 213 points. The blended average rate per sq ft for villas in Dubai in Q4 2015 was AED 1,204 (AED 12,957 per sq m) compared to AED 1,536 per sq ft (AED 16,536 per sq m) in Q4 2014. 200 100 50 0 213 167-22% Q4 2014 Q4 2015 Quarterly The Quarterly Overall Villa index saw no major change in Q4 2015 compared to an 8% decrease in Q3 2015. The blended average rate per sq ft for villas in Dubai in Q4 2015 was AED 1,204 (AED 12,957 per sq m) compared to AED 1,206 (AED 12,985 per sq m) in Q3 2015. VILLA INDEX: QUARTERLY 250 200 100 213 200 181 167 167 50 0 4% -6% -9% -8% 0% Q4 Q1 Q2 Q3 Q4 2014 2015 11
About the Index The Colliers International House Price Index (HPI) was created in 2007 and 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 Citi Bank We have used the weighted average method to construct the overall index. Based on our coverage of 21 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 59%, 26% and 15% respectively in order to provide an accurate representation of market trends. The Recommended minimum sample size for this HPI is 10 property transactions. 12
554 offices in 66 countries on 6 continents Primary Authors: Ian Albert, BSc (Hons) MRICS Regional Director MENA ian.albert@colliers.com Tremaine Ferreira NDPV CIEA Director Residential Valuations tremiane.ferreira@colliers.com $2.5B IN ANNUAL REVENUE 2B SQUARE FEET UNDER MANAGEMENT 16,000 PROFESSIONALS AND STAFF Colliers International Dubai Al Shafar Tower 1 Tecom, Dubai UAE Tel +971 4 453 7400 Fax +971 4 453 7401 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 2014 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.