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- The residential sector has seen a lacklustre market performance in the first half of 2016, but is there any upside to that?
Prospective buyers need to consider the fact that 2,370 units (mostly apartments) entered the market in H1 2016. This increased supply, combined with the general slowdown, impacted the prices. However, apartment sales prices rose by 1.2 per cent and villas by 1.6 per cent in Q2 2016. In terms of yield, it was all about location in H1 with overall flat movement, yet there were some spikes in certain areas, with studio and one-bedroom flats outperforming larger homes. Solid rental yields kept landlords happy especially in affordable projects like Discovery Gardens, International City and Dubai Silicon Oasis; apartments returned 7.5 per cent gross yield across the board on average. Villa yields were lower, averaging at 4.8 per cent, yet there were standout performers like The Springs and JVT.
- What is Chesterton MENA's outlook on the Dubai real estate market for the next six months?
We expect the market to remain slow during the third quarter of 2016.
This will be characterised by weak rental demand in particular and continued price fluctuation as the market rebalances itself in line with the new spending capacity of its residents.
With no major market catalyst on the horizon, it is definitely a case of slow and steady.
However, the mid- to long-term fundamentals of the market remain strong.
This, as we move towards the final three months of the year, with a number of high-profile tourism projects set to open their doors during the fourth quarter as we count down to Dubai's hosting of the Expo 2020.
This could herald a slowing in the pace of deceleration in the next few months, and we believe that the market will bottom out by the end of the third quarter.
- What is the overall picture of the real estate market in terms of rental rates? Are we still seeing a decline?
Rental rates in Q2 2016 dropped by 0.95 per cent on average, but the resilience in apartment yields is a positive indicator of future market potential. The higher end of the market is more dramatically affected. Jumeirah Islands and Jumeirah Golf Estates dropped by more than 5 per cent in the villas segment. A three-bedroom villa in Al Furjan currently rents for Dh175,000 compared with Dh203,000 in Arabian Ranches and Dh360,000 on Palm Jumeirah. A one-bedroom unit in DIFC currently rents for an average of Dh115,000 while a similar property in Dubai Marina rents for Dh80,000. This is only reinforcing the appeal of the apartments segment and the ROI potential of more affordable locations. However, that's not to say that apartment-centric developments aren't also feeling the pinch. Remraam in Dubailand saw a rental decline of 3 per cent quarter on quarter.
- Are transaction levels declining as well, or are we seeing any positivity there? Any risk factors for prospective investors to watch out for?
Overall, transactions in the second quarter of this year did drop by 6 per cent compared to the same period last year.
But sales transactions were up 17.5 per cent on the first quarter, which is good news and a positive indicator for the future.
However, one major area of concern is that of mortgage approvals.
After a solid beginning to the year, when mortgage approvals jumped by over 50 per cent, we saw a significant drop of 20.3 per cent in the second quarter.
Those considering investing, whether for personal use or investment, must, therefore, be extremely cautious.
They should ensure that they have all their financial ducks in a row before making that all-important purchase decision.
- Question of the Week: For prospective buyers ready to commit, what types of unit are worth investing in?
It's the same situation as Q1 2016, with smaller units in secondary locations offering the best mid- to long-term returns.
Apartments provide a higher average yield than villas, especially those in affordable projects.
And it's also worth keeping an eye out for upcoming project announcements of this kind as they are set to attract increasing levels of investor interest as well as providing ample tenant supply, especially those with modest incomes.
International City and Discovery Gardens remain the highest yield providers for apartment units at 9.4 per cent and 10.2 per cent, respectively, with studios yielding 8.5 per cent on average.
Looking across the spectrum of apartment sales offerings, several areas registered slight increases with a one-bedroom apartment in The Greens currently commanding Dh1,350 per square foot, while a similar apartment in DIFC and Downtown Dubai costs Dh1,960 and Dh2,218 per square foot, respectively.
If villas are on the radar, villa sales prices were relatively stable in Q2. A three-bedroom unit in The Lakes currently sells for Dh1,350 per square foot while a similar property in Jumeirah Golf Estates sells for Dh1,515 per square foot. If money is no object, villas on Palm Jumeirah come with an asking price average of Dh2,379 per square foot.
Source: Declan McNaughton, Special to Freehold
The author is Managing Director UAE for Chestertons MENA
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