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Our most recent research has once again highlighted affordable communities as leading the way in terms of rental demand and investor opportunity against a scenario of significant over supply looming in the high-end and luxury segments.
The impact of delayed project delivery in 2015 and a large pipeline for 2016, coupled with the demand slowdown and continued low oil prices as indicators of market prospects this year, will see both rental and sale prices coming under further pressure.
A total of 13,500 apartments and 800 villas were added to Dubai’s residential supply in 2015, and a further 22,000 apartments and 7,700 villas are scheduled to be delivered this year, with a downward rental rate pressure likely to continue through to 2017.
However, in the medium and long term, the outlook is more positive, with demand more likely to grow in line with the progress of key infrastructure projects currently underway like the Al Maktoum International Airport expansion and Expo 2020 site.
Residential sales recorded across-the-board declines, with villa sale prices down year-on-year (YOY) by 11 per cent and apartment prices by 8 per cent. Villas on Palm Jumeirah recorded price declines of 13 per cent over the year, dropping to Dh2,475 per square foot on average; The Meadows was also down 15 per cent to Dh1,150.
End-users, rather than investors, were the predominant buyers of villas and townhouses. They had a clear preference for smaller two to four-bedroom units rather than larger villas. New communities such as Mudon and Arabian Ranches Phase 2 saw improved levels of activity, offering better-priced yet good-quality alternatives to some of the established areas.
At the high end of the apartment market, Jumeirah Beach Residence was down 16 per cent to Dh1,370 per square foot; apartments on Palm Jumeirah dropped 14 per cent to Dh1,720 per square foot on average.
Villa rentals were down 9 per cent on average YOY, but Al Barsha recorded an increase for three-bedroom villas – up 9.2 per cent to Dh213,000 per annum. In Mirdif, similar properties rose 4.2 per cent to Dh138,000.
The biggest falls came in Jumeirah and Umm Suqueim where three-bedroom villas dropped more than Dh50,000 or 20 per cent on average to hit Dh195,000, while larger four-bedroom homes in Arabian Ranches and Jumeirah Park were down 19 per cent to Dh243,000 and 15.5 per cent to Dh145,000, respectively.
The fresh supply entering the market is forcing property owners, especially of older independent villas, to become increasingly com-petitive in pricing.
With supply handover slower than anticipated in 2015, apartment rental rates remained broadly stable over the year, dipping just 1 per cent on average, although there were some disparities between areas.
Shaikh Zayed Road recorded the highest drop of over 12 per cent. Dubai Marina and Palm Jumeirah both saw a YOY dip, with a one-bedroom apartment dropping by 13.3 per cent to Dh98,000 and 10 per cent to Dh135,000, respectively.
The Dubai International Financial Centre area was not immune either in 2015, with two-bedroom units dropping 8.7 per cent to Dh158,000 per annum.
Meanwhile, the commercial office market generally fared slightly better despite significant new space of 500,000 square metres coming online in 2015 and 1.1 million square metres set to be delivered this year.
For property owners, adjustments in terms of rental expectations and payment flexibility will have to be made. As usual in cases of increased supply, better quality, well-managed or value-for-money properties will achieve higher occupancy levels than others.
Source: John Stevens, Special to Properties
Managing Director, Asteco