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The Dubai real estate market this year has been largely defined by economic indicators, especially falling oil prices, weakening international currencies and to some extent the regional geopolitical situation. Several segments of the residential market continued to witness slowing demand and reduced sales values — a correction initially witnessed in the first half of the year.
The year began with the announcement of a balanced budget and no deficit. On the other hand, Dubai’s inflation hit 4.68 per cent in May, which came close to a five-year peak. Housing expenses increased by a record 7.81 per cent during the same period. Low oil prices and volatility dominated the headlines, although Dubai has long been a post-oil economy, with increased revenue from other sectors. Nevertheless, low oil prices pushed the GCC, as a whole, to consider implementing VAT. Additionally, fuel subsidies were axed in July, a move that hoped to boost the country’s economy. The devaluing of the Chinese Yuan, fall of the Russian Rouble and the Euro, globally influenced stocks and markets, with a sizeable impact on tourist spending in Dubai.
With a 13 per cent allocation of government spending on infrastructural development, and the implementation of the Public Private Partnership law for infrastructural funding, transportation development has been on the cards throughout 2015 with more focus on the status of Etihad Rail, and an announcement on Dubai Metro expansion routes. Additionally, expansion of major roads and arteries was on-going since the beginning of the year, an example of which is the Dubai Water Canal project.
The leisure sector has received traction from the progressed development of Dubai Parks and Resorts, Dubai Safari Park, IMG Worlds of Adventure, all set to open next year, and the announcement of 20th Century Fox theme park to be built in Dubai.
Decline in sales prices
The year also saw a continued decline in residential sales prices and transaction volumes. However, the ValuStrat Price Index (VPI) reveals that the rate of decline eased during the first half of the year and decelerated to marginal proportions over the second half. It recently registered no effective monthly fall since the current period of correction after the peak of March last year, possibly signalling increased buyer interest for bargains and distressed sales.
Compared to 2014 residential rentals in the emirate have decreased by 4 per cent, while sales values have seen a double-digit decline of 10 per cent. Office sale prices and rents have seen a marginal negative change. Retail property has seen a slight increase in rentals for line shops in prime malls.
The hospitality sector experienced downward pressure on room rates over the year, due to increased supply from new deliveries, a shift towards mid-market hotels and currency pressures for tourists from the Euro zone and Russia. Growing competition from private landlords leasing apartments on short-term basis has also emerged.
In 2015, overall rates for industrial warehouses appeared to remain stable across various districts within Dubai. However, it will interesting to see if declining oil pricings and a more challenging trading environment for some SME’s have any impact on secondary locations in the year ahead.
Approximately 40 off-plan residential projects were launched across the year, with Cityscape 2015 witnessing the announcement of two master planned projects, namely, Jebel Ali Gardens by Nakheel, and The Villages by Dubai South. Other key projects launched and unveiled at this year’s Cityscape included Meydan One, Creekside18, 1/JBR, and Burj2020 District which feature the tallest commercial tower.
Focus on affordability
Recognising the demand of the mid-income segment, this year the real estate sector has seen a focus on affordability in the coming years, leading up to Expo 2020, both by government and private developers. More than 20,000 residential units are likely to be completed this year, of which 4,000 are villas. However, 30 per cent of the residential projects that were scheduled for completion over the year, have been delayed and are rescheduled for handover during the next two years, indicating an overall slowdown in the construction sector. More than 570,000 sq m (6.1 million sq ft) of office space was completed, and around 230,000 sq m (2.4 million sq ft) of GLA added to the retail supply. Additionally, a total of more than 28,000 hotel rooms and hotel apartments were supplied and added to the stock.
For 2016, all eyes will be on the Federal Reserve’s interest rate policy decisions in the United States, the regional geopolitical situation, as well as any effect from the planned removal of sanctions on Iran. With a continued safe-haven status for Dubai, we expect the residential market to stabilise. Resulting in a rise in inquiries for ready properties in prime areas, in anticipation of capital appreciation, as well as in mid-affordable areas as investors search for higher rental yields.
Off-plan developers will continue to offer improved product and more competitive payment plans, in an effort to attract buyers. We anticipate an increase in transaction volumes compared to 2015. Residential rents are generally expected to soften only marginally, less than 3-5 per cent, if at all. There will be continued strong growth in the prime retail sector, as well as continued pressure on hospitality rates. Additionally, we project there may be increased interest for office space in sub-prime areas due to competitive prices and rents.
Source: Declan King, Special to Property Weekly
Chartered Valuation Surveyor and a Rics-registered Valuer
He is responsible for the real estate function of ValuStrat
Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided.