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How did the 2014 rental market fare?
Rental rates were 7% higher than in Q4 2013, and as such, many tenants were faced with an increase or no change in rates rather than a reduction when leases were renewed.
Overall, 2014 witnessed a slowdown in leasing activity as rental rates stabilized, and many tenants remained in their existing accommodation rather than relocate.
In addition to the popular freehold areas, apartments in areas such as Bur Dubai and Deira were in demand due to the affordability of properties and the general convenience of these locations while villas in the Umm Suqueim and Jumeirah areas were in demand. However, most of the supply consisted of older or very large villas; thus, the offering of smaller new villas targeting expatriate families was insufficient.
What we have seen is strong rental growth of 18% and 13% year-on-year since Q4 2011 for apartments and villas, respectively.
How has the market changed in recent years?
Following a year of rapid growth in 2013, 2014 was marked by a slowdown in transactional activity for all property types.
Prices were higher, and a string of new regulations by the UAE Central Bank and fees (Dubai Land Department transfer fee) made the process of purchasing property in Dubai more expensive.
If we take apartment sales prices, on average, in Q4 2014, they were 22% lower than in Q4 2008 but still 6% higher than in Q4 2013, despite having declined in the second half of 2014. Q4 2014 villa prices were stable in comparison with Q4 2013; however, prices were 30% lower than in Q4 2008.
Indeed, at that time, the strong levels of demand together with the lack of completed villa communities led to extremely high prices, with Arabian Ranches trading at Dh2,200 per square foot in comparison with today’s Dh1,150 per square foot on average.
What about the rental market, what is the outlook for 2015?
The leasing market, which reacts quickly to changes in supply, could soften in 2015/2016 as new supply enters the market.
If all supply is delivered as per current projections, we anticipate a reduction in rental rates over the year, potentially leading to tenant movement and increased transactional activity.
Villa rental rates are anticipated to remain stable in the most desirable areas, whilst marginal declines in less desirable areas can be expected. A more significant drop in rental rates could be witnessed in 2016 and beyond as the projects announced in 2013/2014 are completed.
To give a complete overview of the rental market, we can also look at offices. Rental rates appeared to have reached an equilibrium in 2014. If landlords remain reasonable in their asking rates, we expect transactional activity to improve this year. Certain buildings, especially single owned, good quality properties, could potentially see some rental increases this year.
What were the highlights of 2014?
The year 2014 saw stabilization and moderate growth during the first two quarters, followed by a decline in prices in the second half of the year. As a result of strong price growth, transactional activity slowed down during the second half of 2014 as new supply was delivered to the market and low global oil prices impacted key source markets such as the CIS and GCC countries.
The slowdown in transactional activity was fairly significant, with 25% less transactions for villas and apartments combined for the year, compared with 2013 (Source: Reidin). It was mostly felt in the second half of 2014 as Q4 levels were down 40% compared to the same period last year. Off-plan sales slowed as buyers had a wider choice of completed products to choose from.
Dubai Marina (including JBR), International City, Downtown Dubai and JLT witnessed the most number of apartment sales transactions in 2014. The most popular villa developments were The Meadows, The Springs and Arabian Ranches, accounting for 50% of all villa sales.
Question of the Week: What is the outlook for the real estate sales market in Dubai for 2015?
Sales values are largely underwritten by cash buyers and despite the small correction in values in the second half of 2014, the level of interest in the Dubai market remains strong.
In terms of apartments, we expect transaction activity to reduce across the market as buyers become more cautious, especially when purchasing property for lease, as pressure on rents and yields may increase in light of upcoming supply.
A continuation of low oil prices as well as sanctions imposed on various countries may have an effect on demand for high-end luxury properties, which could lead to a potential reduction in transactional activity as well as a moderate reduction in sales prices.
The overall sales prices of units in sought-after communities with limited facilities and amenities are likely to be faced with declining values.
Villa sales will very much mirror that of apartments. With a substantial number of off-plan schemes launched in 2014, this year is likely to see a reduction in sales prices for off-plan villas and see more attractive payment plans being offered by developers.
Prices for completed villas are anticipated to remain stable throughout the year, and communities with minimal facilities and amenities could witness a drop in value.
Source: John Stevens, Special to Freehold