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Core Savills Annual Residential Sentiment Survey
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Core Savills Annual Residential Sentiment Survey

Core Savills Annual Residential Sentiment Survey

  • Overall market sentiment slightly down from 2016 due to higher uncertainty from respondents
  • Paradoxical response on rental softening leads Core Savills to forecast room for longer period of adjustment  
  • Strong demand from investors for off-plan units in the bottom segment of the market, although access to mortgage is still a major deterrent for end-users
  • Budget, location, developers’ reputation – 3 most important factors for buyers, in a market still largely driven by prices

 

In a market largely governed by sentiment, Core Savills annually captures, gauges and analyses the underlying sensibilities and occupier preferences driving real estate decision-making in Dubai through their flagship residential sentiment survey. This publication, comprised of inputs acquired from a diverse pool of local and international respondents, aims to inform, stimulate the debate and draw indicative future trends.

Sentiment of uncertainty persists – Leap of faith for first time buyers

According to the annual survey from Core Savills, only 34% of respondents believe that Dubai’s real estate has displayed signs of recovery, while the 2016 annual survey showed a more convincing 50%. 8 out of 10 of this year’s respondents who disagree on visible recovery, believe that Dubai's residential market is expected to be over-supplied by 2020.

This clearly demonstrates a discrepancy between market reality and perceived sentiment.  As discussed in Core Savills’ previous publications, there has been over 40-50% lag in the last five to six years between the number of announced and delivered units. In reality, nearly 15,000-18,000 units are delivered every year, which adds only 3% to 4% to the existing stock– albeit, a moderate number to be absorbed, even in the current market economic condition, and not a cause of extensive concern as perceived by the market.

This divergence between sentiment and reality is supported by the fact that 20% of the potential buyers below the AED 1 million price-point consider the lack of knowledge to be an important deterrent to their acquisition.

Macro-economic uncertainty turns out to be the second highest factor deterring potential buyers from purchasing a unit, following the lack of funds for down-payments.

David Godchaux, CEO of Core Savills explains: “These factors accentuate the fear to take a “leap of faith” for many first-time buyers in their decision to acquire a property in Dubai, despite the very convincing signs of maturity, stability, and added depth to the market that have become apparent since 2011. This is further illustrated by the ratio of existing owners in the total number of potential buyers: about 36% of those who are planning to acquire a unit over the next 12 months, already own a property in Dubai, and 50% of existing owners are considering further potential acquisitions – a very positive finding showing that much of the advisory effort might be worth spending on those who haven’t taken the leap yet. This is especially true in the context of almost a third of respondents declaring they have no opinion on the market, and a fifth of those considering acquisition in the lower price brackets thinking their lack of market knowledge might deter them to buy.”

Rental market trends

Although 80% of tenants chose to stay in their existing units, only 26% of them declare having seen a decrease in their rent, while 58% renewed under the same conditions. This confirms the friction felt on the rental market, with a lower elasticity of offer to demand. It also indicates potential room for further rental softening over the next 12-24 months. Not in rental amplitude but in volume, as three fourth of tenants have not seen their rent decreased, and may want to continue negotiating with their landlord when renewing, which would contribute to pull the overall average down. David Godchaux explains “As this effect slowly unfolds, we warn against any future over-interpretations of further rental decrease as most of the recorded figures might turn out to be the statistical effects of a market that continues to self-adjust more widely, rather than further actual rental reductions in amplitude.”

 

Investors’ appetite for off-plan products vs end-users

The rising interest in off-plan products is confirmed by the survey results, although off-plan still appeals primarily to investors especially in the apartment segment below the 2 million AED price point – with with almost twice as many investors as end-users considering an acquisition in this segment (65% vs 35%).

Some developers have worked on reversing this trend and increase the ratio of end-users amongst the total pool of buyers. As a result, attractive payment plans have flourished over the past 12 months, demonstrating their willingness to make their products accessible to more end-user buyers. This effort has been welcomed by the market with 64% believing that attractive payment plans encourage buyers to favour off-plan over ready properties, despite factors such as delayed delivery.

Nonetheless, of those 64%, only a third would actually consider buying off-plan, while the majority still prefers looking at existing properties.

Indeed, as successful as the payment plans have been in attracting new home-owners to the market, they have not completely addressed the bottom tier, with access to mortgage remaining the biggest deterrent to buy, for those considering units priced below AED 1M (off-plan or existing), as 65% report so.

David Godchaux comments: “This has a relatively strong impact on the bottom segment from an end-user point of view, because buyers are 30% more likely to prefer mortgage as a finance mean for acquisitions below AED 1M (87% of  them would prefer a mortgage) than a purchase above AED 4M.”

However, the report highlights that the situation is improving, probably as lucrative payment plans marginally ease pressure on reliance for mortgage finance. While the 2016 Core Savills survey showed 71% of respondents believed the mortgage regulations should be relaxed, only 55% now believe the same.

 

Market still price-driven, with more mature ways to assess quality

When asking to rank the most important parameters in one's buying decision, budget came first by far, with almost 80% choosing this factor as one of their most important criteria; one potential buyer out of two even considers this to be the most important parameter.

This translates the sentiment of a market still essentially price-driven, with location and developer reputation coming far behind in buyers’ priorities.

Location remains important, with 69% considering it to be one of the top 3 most important parameters in their buying decision, and 24% asserting this is their most important factor.

David Godchaux comments: “This confirms the idea explored in our past reports, that Dubai is progressively shifting from a model of connected hubs to a more organic growth model around one or two main anchor districts forming a consensus in being the established core locations; this scenario is unfolding as the location, rather than community and amenities seems to increasingly drive the buying decisions.”

The report highlights that “Developer reputation comes third with 54% of potential buyers who consider it to be one of the 3 most important parameters, and 11% who judge reputation to be their most important criteria.

Paradoxically, the product build-quality came fourth with only 26% of votes, and 6.5% considering this to be the most important parameter for them. But this is only a paradox in disguise: indeed, we do not interpret this as a factor diverting buyers’ attention away from quality, but rather as a different assessment tool for them to measure build-quality, through the developer’s reputation and track-record as another sign of the market maturing.”


Dubai Creek Harbour emerged as the most prominent flagship development likely to shape Dubai according to 22%, while Dubai South (including the Expo 2020 site) came a close second, followed by City Walk.



Source: Press Release