(MENAFN- Emirates News Agency (WAM)) Real estate regulatory changes including the UAE-wide mortgage cap and Dubai's doubling of registration fees last year, have contained a market that was in danger of overheating, according to a report from consultants real estate consultant Cluttons.
Cluttons Spring 2015 Dubai Residential Market Outlook report highlighted a dramatic reduction in transactional activity.
It said the upward creep of project completions, coupled with the slow motion impact of new real estate regulations and the general dent to sentiment, has weighed heavily on the Dubai residential market.
The report added that the 2015 outlook remained "somewhat mute", with villas expected to bear the brunt of price declines.
According to Cluttons, the first quarter of the year saw overall home values edge downward by a further 0.8 percent, leaving average prices 0.5 percent down on this time last year and 19.4 percent below the Q3 2008 historic peak.
Steve Morgan, chief executive at Cluttons Middle East, said: "The Federal Mortgage Caps have been in place for over a year now and the impact on the villa market has been particularly pronounced.
"The anniversary of the game changing Federal Law has passed relatively unnoticed, however this has had a positive, but powerful influence on the level of transactions."
During 2014, just under 1,300 villas changed hands, down 52 percent on 2013. The number of transactions during Q1 2015 was down 36 percent on the same quarter last year, Cluttons said.
Cluttons' report showed that the total amount of upfront equity required for the purchase of an AED5.5 million villa has gone up from 20 percent to 42 percent with the introduction of the mortgage caps.
"The sustained growth in rents over the past 18 months has exacerbated the challenges of amassing a deposit, while the cost of living has continued to rise. There may be some respite on the horizon as the dirham continues to strengthen, driving down inflation," added Morgan.
Faisal Durrani, Cluttons' international research and business development manager, said: "The regulations have been instrumental in reigning in the market and the slow motion impact has been gradually amplified over the past 12 months. The result has been a much more subdued market, with the risk of another rapid correction being carefully managed away."
Away from the sales market, residential rents have also continued to slowly soften, said. During Q4 2014, rents dipped by 1.9 percent, leaving the total rental value growth last year at a marginal 0.4 percent.
Cluttons' report also said that with supply levels continuing to edge up, landlords are growing wary of the threat of longer void periods due to the fear of an increased level of choice for tenants.
This may trigger a period of "off-grid" deals, where landlords and tenants agree to rents that are not in sync with RERA's recommendations, it added.
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