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The last few quarters have seen limited transaction activity in the residential market in Dubai, with buyers waiting to close the deals due to uncertainties and sellers reluctant to negotiate prices down, as they reap the benefit of high yield profiles. Rental levels have declined slightly, while prices dropped significantly over the past two years. This resulted in healthy yields, which cushioned reluctant sellers until the actual impact of economic and political factors lead to a decline in demand and occupancy
There has been a flurry of headlines recently around an expected turnaround in the market in the coming months. However, a thorough analysis of the market does not support a nearterm bottoming or a quick change. For the time being, the low oil price will continue to slow economic and job growth, reducing the growth in housing demand. Rents have and will likely continue to adjust downward, which will put additional downward pressure on sale prices. Additionally, new supply has also kept a downward pressure on prices. Investors have remained on the sideline waiting for prices in the secondary market to decline further or have bought select off-plan units launched at lower prices. The government’s move towards diversifying the economy to reduce dependence on oil revenues is a welcome move for the sector. Benefits of this are, however, unlikely to have a medium term impact on the residential market. Even the improving demand scenario closer to Expo 2020 is not the panacea the market needs. A real turnaround will be based on sound fundamentals that are the backbone of a mature market. What the sector needs is increasing activity from investors with a long term horizon and sustained economic and job growth to drive housing demand, both in terms of renters and those looking to move up the property ladder.
Source: Sofia Underabi, Special to PW
The author is Head of Residential Valuation at Cavendish Maxwell.