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What have been the main trends in the Dubai property market over the past six to 12 months?
There have been a number of launches in recent months that have proven extremely popular in terms of take-up. There were moves by the Dubai Municipality to augment existing reasonably priced rental stock, with the allocation of over 100 hectares of land in Muhaisnah 4 and Al Quoz 3 and 4 for developers to build affordable housing for rent to those earning between Dh3,000 and Dh10,000 per month. Value for money has become more important than property prestige. With a noticeable decline in buyers from Russia and the CIS countries, we are seeing more GCC investor interest in reasonably priced properties, including off-plan projects specifically designed for investors. We also finally saw a degree of willingness on the part of premium property vendors to reduce their asking rates, but with limited demand, activity has been relatively low.
What do you think is likely to happen with residential rents and sale prices in both Dubai and Abu Dhabi over the next six to 12 months?
With close to 16,000 residential units theoretically due to be delivered in Dubai by the end of 2015, rental rates could come under pressure this year. However, we have seen similar scenarios every year whereby handover dates are delayed and tenants unable to move in for longer periods of time.
As such, rental declines will depend on whether the anticipated supply is actually delivered during 2015, and, if this is significantly delayed, the downward rental adjustments may be seen only from 2016 onwards.
In Abu Dubai, rental prices are likely to increase on a “steady as she goes” basis. From a sales perspective, prices are already at a high rate and we do not foresee any major increases over the next 12 months.
What about Abu Dhabi? What are the real estate trends?
The main trends in the Abu Dhabi market have been that the sales rates have been stable. There have been some interesting new projects launched during Abu Dhabi Cityscape and in the last three months.
Park View on Saadiyat Island has seen significant interest and sales prices range from Dh1,750 to Dh1,900 per square foot. Projects including Jawaher Al Saadiyat and Hidd Al Saadiyat show there is strong demand for high-end villas.
Plot sales, not something Abu Dhabi has seen much recently, came back in Al Merief in Khalifa City and Nareel Island where there is clear evidence of interest in well-designed schemes.
A new legislation is another excellent sign that the market is maturing. In the leasing market, we are seeing stable rents and demand for villas, and a strengthening of rates and demand for apartments. This is likely to be because the villa rental market has reached near its natural ceiling.
How has the Abu Dhabi market changed since 2009 in terms of villa and apartment sales and rental rates?
Following a major decline in rental rates after the financial crisis, the Abu Dhabi residential market witnessed an improvement since mid-2012 as apartment and villa rental rates increased by an average of 18% and 9%, respectively up to the end of Q2 2015. Apartment sales prices recorded a quicker recovery. They achieved sales rates, recording a 25% increase compared with their lowest point in Q2 2010, whilst villa sales rates increased by more than 30% since Q2 2012.
Office rental rates closely followed the residential trend of growth and recession from 2008 to 2012 without, however, witnessing any significant recovery until today. This was due to several factors including a large amount of availability in the city which continued to put pressure on rates specifically for lower quality properties. Nevertheless, slow but steady growth continued to be recorded for prime office space, which increased by 7% over the last six months.
Question of the Week
How does the Dubai market compare now to when it was at its peak?
Whilst rental rates and sales prices in Dubai’s residential market saw more improvements in mid-2012 and 2013, we witnessed the fastest growth rates peaking 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, and areas with a significant amount of completed new supply were the most affected.
Furthermore, some buyers of nearly completed buildings were keen to sell at negative premiums due to the imminent completion of the buildings which required final payment.
The office sector continued to lag behind the residential sector in terms of performance due to modest rental and sales price growth recorded since the market’s lowest point in early 2013.
As such, the office sector continued to be in the early stages of recovery; however, rental rates have witnessed a slow but steady growth with rates up by 6% in Q2 2015 compared with the same period last year.
Source: John Stevens, Special To Freehold
Managing Director, Asteco