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- A number of figures have been quoted in the media recently regarding the Dubai property market. Could you please provide an overview.
Whilst rental and sales prices in Dubai's residential market saw some improvement in mid-2012 to 2013, the fastest growth rates peaked in Q2 2014. Since then, however, the market experienced a period of stabilisation, with declines observed in the last six months. As a result, apartment rental rates were 2% lower than a year ago, and villa rental rates were 5% lower, on average, during Q2 2015. Sales prices fared similarly, with villas recording an 11% drop and apartments a 7% drop since their peak in Q2 2014. The decrease was felt throughout the market. Areas with a significant amount of completed new supply were the most affected. Some buyers of nearly completed buildings were also keen to sell at negative premiums as imminent completion required final payment.
- What advice would you give someone new to the UAE and looking to rent?
This differs from person to person depending on circumstances; however, a brief overview of the market can be given to help one make an informed decision. Apartment rental rates declined by 2%, on average, in Q2 2015. This was the first time in the last 12 months that rental rates have fallen below their previous years' levels, which was also by 2% for the same period. If the trend continues, tenants are likely to see limited increases or some decreases in rental rates upon lease renewals. For new tenants, opportunities were available as landlords became more flexible with payment terms and other incentives such as rent-free periods. This was evident in areas with high vacancy levels. In terms of villas, overall, the market became more tenant-driven which again resulted in landlords becoming more flexible and willing to negotiate rates and terms to secure tenants. The trend of reducing rental rates is expected to continue throughout the year as the anticipated stream of new supply continues.
- In terms of increases and decreases for apartments, what areas stood out in Q2?
The highest quarter-on-quarter declines were recorded on Shaikh Zayed Road, Palm Jumeirah and Jumeirah Beach Residences (7%, 6% and 6%, respectively) as rates, especially for high-end properties, in these areas came under pressure with tenants becoming more budget-conscious.
Interestingly, the International Media Production Zone (IMPZ), Dubai Sports City (DSC) and Dubai Silicon Oasis (DSO)recorded higher rentals than last year as these were, at that time, negatively affected by the fact that they were not completed yet. As occupancy rate increased and the communities saw significant improvements in terms of provision of supporting facilities, these are now gradually becoming popular mid-market residential areas. As a result, rental rates were up by 13%, 11% and 6% for IMPZ, DSO and DSC, respectively compared to last year.
- For villas, where were the big rental increases and decreases?
On average, villa rental rates were also down by 2% this quarter and 5% compared to the same period last year. This was due to the handover of supply which started to affect existing communities as tenants had a wider choice of new and better quality products.
The Casa Villas at Arabian Ranches were ready for occupancy in Q2. This brought rental rates in that area down by 7% over the quarter and 15% over the year. The continuous handover of Mudon's townhouses put pressure on landlords of neighbouring developments to secure and retain existing tenants. Its three-bedroom townhouses with landscaped gardens are competitively priced for as low as Dh175,000 per annum. Jumeirah Park saw a 10% decline compared to last year as vacancy levels continued to be high and competition throughout the city affected take-up. Palm Jumeirah witnessed a 5% quarterly decline due to the handover of Palma Residences which command lower rental rates.
- Question of the Week: How has the residential sales market fared?
For apartments, the second quarter of 2015 was marked by a shift of buyer interest to more affordable properties that originally appeared to be predominantly for investment purposes.
As such, the International Media Production Zone (IMPZ), Dubai Silicon Oasis (DSO), International City, and the recently handed over Queue Point and Sky Courts were faced with good levels of demand as yields, especially for studio and one-bedroom apartments, remained attractive.
Despite strong levels of transactional activity, sales prices for affordable apartment properties were down by 25% on average compared to last quarter, whereas DSO witnessed close to 10% decline due to the large amount of competition in Sky Courts and Queue Point.
At the higher end of the market, transaction activity slowed down significantly as most transactions appeared to be a remortgage of existing properties rather than new sales.
Villas very much mirrored the situation of apartments, with buyer interest shifting to smaller, more affordable properties. Jumeirah Village recorded a high number of transactions for some of the townhouse properties. Larger properties saw minimal transactions in communities such as The Villa or Dubai Sports City despite strong rental demand. Arabian Ranches also saw a reduction in interest as competition from new communities close by diverted buyer interest.
Ask the Agent - What you should know about buying property in Dubai?
Source: John Stevens, Special to Freehold
The writer is Managing Director - Asteco
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