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I am new to Dubai and I have heard a lot in recent months about the market bottoming out. What is the situation?
Whilst declines in values may still be recorded, these are likely to be marginal in the next months; therefore, the market looks likely to bottom out by yearend. This appears to be a window of opportunity where buyers will be able to continue securing good deals for both completed and off-plan products.
From a leasing perspective, the trend witnessed in the first half of the year is expected to continue, with rates under moderate pressure. This will largely depend on the timely delivery of new supply, which has already slowed down significantly.
For the sales market, it was the bulk investors entering the market in the first half of the year; however, single buyers/owner occupiers are expected to follow suit over the next few months as market sentiment improves.
Is ‘affordability’ still the keyword?
Overall, rental rates decreased by a modest 2 per cent as only approximately 3,000 apartment units were handed over, which were mostly mid-range and affordable accommodation.
Despite a strong demand for smaller apartments, the delivery of new stock pushed rental rates down by 4 per cent on average. Affordable three-bedroom units recorded only half a percent decrease in the first half of 2016 as these units were in low supply. Larger units in the high and mid-segment witnessed declines of over 3 per cent on average.
From a villa perspective, rental rates recorded less than 1 per cent decline during H1 2016 as limited new supply was handed over and occupancy rates improved in recently handed-over communities.
There was also a shift in demand and tenants upgraded to better value-for-money units, e.g. Al Furjan and Jumeirah Park where larger units were offered at lower prices.
What is your assessment of the real estate market in the first half of the year?
The slowing down of project completion and handover had a direct impact on rental rates, which dropped less than expected by 2 per cent on average since the beginning of the year for apartments and less than 1 per cent for villas.
Rental demand remained strong, with a noteworthy tenant movement including downsizing, upgrades and moves to value-for-money properties.
Our latest report also noted an overall increase in residential sales transactions by value where bulk buyers and investors remained the main purchasers.
The office market did not perform well with a reduction in transaction levels, sales prices and leasing rates, with new supply intensifying competition, and summer and the holy month of Ramadan taking their usual toll on the closing of deals.
If now is the time to buy, where should I consider?
Jumeirah Village has received a great deal of interest from end-users and investors, particularly for apartments.
Villa rates were broadly stable over the last six months, with an average increase of 0.3 per cent recorded, the first since rates peaked in Q2 2014.
The trend seen last year continued during the first half of 2016, whereby end-users, rather than investors, were the predominant buyers of villas and townhouses, with a clear preference for smaller two, three and four-bedroom units.
Arabian Ranches and The Springs were the most transacted areas over the quarter, with Mudon recording a strong level of demand.
Jumeirah Village Triangle (JVT) townhouses saw a reduction in the number of transactions as competition from Mira made the area less attractive. Mira offers three-bedroom townhouses at Dh1.2 million, which is typically the price of a one-bedroom townhouse in JVT.
Question of the Week
What will the Dubai market look like six months from now?
With single buyers/occupiers expected to enter the market as sentiment improves, we could see a further increase in transaction levels although sales prices are unlikely to rise before the end of the year. Prices are very close to bottoming out; therefore, now could be the perfect time for individuals to buy properties.
Smaller units will be preferred to larger units, with stable transaction levels for studio and one-bedroom apartments as well as smaller one, two and three-bedroom townhouses and villas. In contrast, sales for large premium units are likely to remain subdued this year.
There has also been a marked increase in developers relooking at purchasing land, for which interest had dried up over the last year. With land rates relatively low, we expect transactions to conclude in areas closest to the new airport as these are expected to be the new growth zones in the city.
Leasing in the second half of the year is likely to continue with rates under moderate pressure, although this will depend on the timely delivery of new supply.
We will also likely see a trend of single-owned buildings that have not yet reduced their asking rates and are faced with increasing vacancy levels to drop their rates as dictated by the market.
Source: John Stevens, Special to Freehold
Managing Director, Asteco