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Research from property management firm Asteco shows that the 30,000 residential units needed to match supply with demand in Dubai will come online much sooner than previously predicted.
Talking exclusively to PW from Asteco’s Dubai headquarters, Managing Director John Stevens says the new supply will be fit for occupation by 2016 and not 2018 as was recently reported.
"In terms of supply data, there were recent reports in the media saying an estimated 30,000 units are required to match demand by the end of 2018. Our figures have that number being hit by the end of 2016,” he says. “We’re talking about 24,000 apartments and about 6,000-9,000 villas ready by the end of 2016. Supply will match demand a lot sooner than 2018.”
Although it is unsure how many units in total will come online in the buildup to the World Expo 2020, there is uneasiness about the possibility of an oversupply in the market once the fireworks of the exposition have fizzled out.
An oversupply could prompt a marked deflation in rentals and sales prices, but Stevens says there’s no need to worry.
"There is nothing that is empty in Dubai, in residential accommodation,” he says. “There was nothing that was empty in the financial recession. We manage about 12,500 units, 370 buildings and our vacancy level never dropped; the rental rates dropped, but vacancy didn’t.
“Ultimately, we’re seeing occupancies rise, so there are certainly new people coming in. But will the new apartments and villas create an oversupply? I don’t think so. It might have an effect on moderating any further price increases.”
The influx of new properties will be greeted warmly by tenants as it is expected to hold back the astronomic sales and rental increases in the emirate.
"Our data is showing that the stabilisation [of rents and sales prices] has continued. Rent increases will continue for very specific developments and specific products, based on demand,” says Stevens. “For instance, if you want to live in Dubai International Financial Centre, you are going to be paying much more because there is limited supply. And the same goes for Oceana on The Palm.
“But if you’re looking for a three- or four-bedroom villa, you’re going to have a lot of choices. It’s down to the difference between the types of ownership structure.”
He adds: “The freehold market has an effect when it comes to price fluctuation because individual landlords want to protect their rentals and will structure what they accept for rent accordingly.”
Further more, an Asteco research shows that Dubai’s prime residential areas are among the most affordable when compared to other global markets.
For the second quarter of this year, Asteco’s research shows that rentals in Dubai’s prime areas for one-, two- and three-bedroom apartments averaged Dh115,000, Dh160,000 and Dh235,000 respectively. That compares to Dh195,000, Dh340,000 and Dh493,000 in London, and Dh346,000, Dh500,000 and Dh654,000 in Hong Kong for properties of the same size.
Although Dubai’s prime rental rates pale in comparison to other cities, the emirate’s comparatively inexpensive costs are offset by the fact that rents heading into the third quarter were the fastest growing in the world.
Looking towards the tail end of the year, Stevens says that while the summer months were some of the quietest the industry has witnessed in recent memory for transactions, he expects activity to pick up after Cityscape Global.
"What we’re getting from our investors is that they expect Cityscape to have a lot of new releases, and they’re holding back so they can see what’s coming online before they decide where they’re going to place their money for the new off-plan projects,” he says.
“But, generally, lower-value plots are very much in demand. So for ground plus four and ground plus five — the types of plots that can be purchased and developed at a reasonable cost — there is a huge demand.”
Check out the Dubai government's expectation which essentially relates to Asteco's finds: New supply to stem Dubai realty price spike
Source: Thomas Billinghurst, Features Writer, Property Weekly