Expert Eye: 2015 Dubai realty market round-up

Expert EyeJohn Stevens

Last year, we have seen stability across all asset classes and a decline in residential rental rates due to the release of new units, with more pres-sure expected with new releases this 2016.

A general slowdown in the number of residential transactions in the secondary market was evident during the summer months as sellers and buyers had different price expectations.

Newly launched properties with reasonable prices and/or payment plans and healthy prospective ROIs have been attracting solid investment interest which will define market movements in the months to come as affordability remains a major driver for sales, especially in desirable but high-priced developments such as Dubai Marina (including Jumeirah Beach Residence) as well as areas at the top end of the spectrum like Palm Jumeirah, which saw Q3 year-on-year (YOY) drops of 10% and 13%, respectively.

The apartment rental market remained relatively unchanged, with only moderate increases seen in areas that had witnessed strong declines previously, especially at the higher end. YOY apartment rental rates also recorded a nominal decline.

At the end of last year, about 7,000 new apartments, assuming no con-struction delays, were expectedly added to Dubai’s current inventory plus a potential further 13,000 units this year, which will continue to exert continued downward pressure on rental rates.

While it’s not great news for investors in the short term, it is helping reposition Dubai as an affordable place to live and work. The volume of new units will also force landlords to become more competitive as the offer is adapted to end-user demand. We have seen some landlords already increasing the number of rental payment instalments.

Villa sales were down and rental rates remained relatively unchanged last year, with some areas even witnessing moderate increases as take-up in newer communities such as Arabian Ranches Phase II and Mudon improved.

With the handover of projects like CASA villas at Arabian Ranches and the competitively priced three- and four-bedroom townhouses in Mudon, there had undoubtedly been pressure placed on landlords of neighbouring developments to secure and retain existing tenants.

With the expected delivery of 9,000 villas this year, this will naturally mean further – and potentially substantial – rental declines, and potential investors will also have affordability front of mind.

The high number of transactions for townhouse properties by Nakheel and Indigo Ville in Jumeirah Village earlier last year was countered by a decline in sales demand for larger properties in previously popular communities like The Villa in Dubailand and Dubai Sports City, where a minimal number of transactions were completed despite strong rental demand.

In comparison with other cities around the world such as Zurich, Hong Kong and Sydney, Dubai rental rates remain cheaper. Comparing like-for-like in Singapore, for example, Downtown Dubai is still a cheaper option and offers good ROI.

In the commercial sector, office sales transaction levels were more or less mirroring the same period in 2014, with negligible quarter-on-quarter changes.

The second half of the decade will be a game-changer for Dubai as we count down to 2020, with an expected 70,000 new units in the supply pipeline.

If all these real estate projects come to fruition, then this will place the negotiating power firmly in the hands of tenants, even with the forecasted increase in new residents or population linked to the emirate’s highly anticipated hosting of the Expo 2020.

Source: John Stevens, Special to Freehold
Managing Director, Asteco


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