As yields strengthen, new opportunities emerge

Line-in-line with other safehaven assets like government bonds, investing in property appears to be more fruitful in Dubai and London, according to a Knight Frank study.

Figures from Knight Frank’s Global House Index reveal Dubai residential prices plunging around 12.2 per cent over 12 months to June, while decline of mainstream rental rates has been cooling down over the same period at a low rate of 1.2 per cent. In comparison, yield returns, as a first-hand result to such sale-rent combination, have strengthened over the same period with a 9.9 per cent increase to reach 7.42 per cent in Dubai’s mainstream market in July. This is good news for an income-seeking investor as yields are high compared to other relatively safe havens.

Mainstream residential prices in London between January 2009 and June 2015 have increased around 71 per cent, establishing the city as a safe haven for capital investors in the aftermath of the global financial crisis.

However, growth of sale prices has cooled down lately due to waning demand to reach 4 per cent on a year on- year basis in June. On the other hand, rental rates have been increasing at a rate of 3.8 per cent year to June in London.

In comparison, Knight Frank noted that Dubai government bonds were trading at $89.78 (Dh329.77) with a yield-to-worst of 6.01 per cent compared to 30-year US Treasury yields of 3.10 per cent, both figures for July. On the other hand, bonds in the UK are resulting in lower yields which are usually below 3 per cent.

As a rule of thumb, mainstream yield returns are usually stronger than those produced by prime segment properties. As mainstream property rental yields stand at around 4-4.5 per cent in London in June, prime segment yields are about 3 per cent. In return, low prime property yields combined with hiking prices have pushed prime property seekers to look afield towards London’s periphery market.

In Dubai the magnitude of decline in prime residential prices in the year to June was smaller at 4.5 per cent compared to the mainstream properties due to a higher demand on the first segment.

“With selling prices in Dubai hit by stronger US dollar, declining oil prices and government intervention, it’s fair to say that there has been more resilience in Dubai’s rental market than in sales,” said Diaa Noufal, Associate Partner — Middle East and North Africa Research, Knight Frank.

Source: Property Weekly


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