Ask The Agent - How has the rental market fared

John Stevens, Managing Director, AstecoJohn Stevens, Managing Director, Asteco

I plan to invest in a townhouse. I prefer Arabian Ranches. What is the fair market price for it? What upside can one expect from the current level?

According to our latest report, compared to last quarter, sales prices remained stable with the exception of high-end apartments and villas. Villa sales prices were down, on average, by 6 per cent compared with the same period last year and 2 per cent compared with the previous quarter. This was due to the continuous stream of new projects for sale. Villas priced at the higher end of the market continued to be the most affected as high price points deterred buyers from concluding deals. Sales prices were down predominantly in communities such as Jumeirah Golf Estates, The Villa and the larger-sized villas at Arabian Ranches with rates of 14, 11 and 13 per cent lower, respectively, compared with the same period last year. Average sales prices (per square foot) for a villa in Arabian Ranches vary from Dh700 to 1,400.

Are we finally seeing prices bottoming out?

The market has moved favourably towards the buyers as prices drop and cash investors and end-users find themselves in a strong negotiating position. The most transacted areas in value terms were Dubai Marina, Palm Jumeirah and Downtown Dubai; however, apartment sales prices were down 6 per cent at the Palm, and 4 per cent in both Marina and Downtown in Q1 2016. Villa sales prices year-on-year were down according to our most recent report. Arabian Ranches and Jumeirah Golf Estates were the most affected with decreases of 13 and 17 per cent, respectively, while the Springs, Palm Jumeirah and Al Furjan also saw sales prices drop by 10, 8 and 11 per cent, respectively. International City had the highest number of transactions recorded in the quarter, further underscoring the demand for affordable housing. IMPZ and Jumeirah Village also notched quarter-on-quarter increases of 4 and 5 per cent, respectively.

Are townhouses more in demand than villas and mansions in Dubai today, given the drive towards affordability?

The new supply expected to come into the market this year following delivery delays in 2015, combined with slowing demand and continued low oil prices, will put sales prices under pressure; therefore, it is a pro-buyer’s market right now. The trend of falling prices in Dubai began in 2015 and this is expected to continue in 2016 albeit at a more moderate pace. With several previously launched off-plan projects also coming closer to completion, we expect to see renewed interest in these properties, leading to higher transaction levels. As projects become complete, the LTV (loan to value) mortgage ratio offered by banks to clients will also increase. Last year’s price softening has been welcomed by prospective investors eager to get a foot in the door or add to existing portfolios, and it has also allowed the market to catch its breath and regain investor confidence in its long-term prospects and the value offering when compared to other global property hotspots.

Has the price of renting a villa changed dramatically? How much cheaper has it become?

Due to a limited supply of villas completing, rental rates were relatively stable across the board compared with Q4 2015. There have been some increases in certain areas; average rates continued to be 5 per cent lower compared with the same period last year. The most notable increases were in communities handed over in the last 12 months where improvements such as landscaping, retail elements and other facilities had been implemented. In the majority of areas, rates recorded a moderate decline or did not witness any increases indicating pressure remained. This is likely to continue throughout the year as more villas are handed over and tenants seek to downgrade to cheaper properties. Assuming there are no delays, around 700 villas will be handed over from projects at Living Legends, Jumeirah Park, City of Arabia, Akoya, Arabian Ranches and Mira, and smaller developments in Al Barari, Jumeirah Village, Dubai Sports City and Mudon.


Question of the Week

How has the rental market fared. Is it similar to the sales market?

For apartments, leasing activity at the beginning of the year started well; however, enquiry and transaction levels tapered off in March.

This was partly due to property owners who are keen to retain their existing tenants and are, therefore, willing to negotiate rental rates instead of having a vacant property. As a result, fewer tenants were seeking to move to a new unit. More expensive units in buildings have tended to stay vacant for longer.

Year-on-year comparisons have shown an average of 4 per cent decline across the board. The most affected areas were those that had seen previous rapid rental increases. Jumeirah Lakes Towers, for example, dropped 12 per cent year-on-year. Although the area has a number of positives and is a nice place to live, the quality of the offering did not meet tenants’ expectations, given the high rental charges. It will be interesting to note the take-up for the high-end City Walk development and what impact it has on the market.

Amongst the other areas in Dubai to have seen a year-on-year rental declines are Dubai Marina, Palm Jumeirah, Dubai International Financial Centre and Shaikh Zayed Road, which all saw declines of between 5 and 11 per cent. On the other hand, Discovery Gardens and Business Bay have seen annual growth rates of 13 and 4 per cent, respectively.



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Source: John Stevens, Special to Freehold

Managing Director, Asteco


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