Expert Eye - Dubai's real estate market outlook

Expert Eye - Dubai's real estate market outlookJohn Stevens

The basic economic premise of supply and demand shapes the property market, and as long-term residents of the emirate know all too well, the spikes and declines in real estate are a permanent water cooler topic.

Whether you are a tenant, buyer or seller, market movement in Dubai over the last nine months has been under close scrutiny with the word ''slowdown'' the most commonly bandied about.

However, ''slowdown'' is something of a misnomer. The situation over the last three quarters has seen a gradual and sustained shift towards a more stable market as new units have been released across the city.

The third quarter of this year registered a new first for Dubai's real estate sector with both residential rental rates and sales prices declining in tandem.

This natural adjustment is proving beneficial for tenants, offering a much-needed respite following the upward rental rates trend of 2012 and 2013.

But it's a different scenario for buyers and sellers, with the mortgage cap legislation and higher transaction fees impacting the number of transactions as it becomes increasingly expensive for prospective buyers to get onto the Dubai property ladder.

If you look at the figures from our Q3 2014 market report, apartment and villa rents dropped 2% and 3%, respectively against Q2, continuing the downwards trend, albeit at a slower pace.

Sales prices for apartments and villas also declined by 4% and 1%, respectively, but year-on-year (YoY) sales growth remains positive, with apartments up 31% and villas up by 17%.

A significant percentage of buyers are sitting on the fence for now as they wait for a further softening of sales prices as additional new supply is released. In the short term, a price reduction will be beneficial for the market as it will assist in unlocking demand from the middle-income segments of the population.

Sellers with properties in Jumeirah Lakes Towers (JLT) and Downtown Dubai profited the most YoY as per our Q3 analysis, with prices rising by 37% and 35%, respectively, reaching up to Dh1,500 and Dh3,000 per square foot, respectively.

In contrast, areas like Jumeirah Village are currently available at Dh800 to Dh1,050 per square foot, down 3% quarter-on-quarter but up 32% YoY, but still hold promise in the long term as the surrounding infrastructure continues on its development track.

It's the same scenario for two very different communities – the affordably priced Al Furjan community located along the Mohammed bin Zayed corridor and the ultra-desirable lifestyle of Palm Jumeirah.

The two locations recorded per square foot sales rate of up to Dh1,150 and Dh4,000, respectively, with a 4% quarter-on-quarter drop for Al Furjan and no movement for Palm Jumeirah. If we look at YoY growth though, both demonstrated strong performance at 38% and 55%, respectively.

Market stabilization has also clearly affected rental income prospects. Our latest report shows a 7% quarter-on-quarter drop for Discovery Gardens and International City following previous YoY record growth levels of 23% and 40%, respectively.

In comparison, some of Dubai's prime areas, such as Downtown Dubai, have remained relatively stable with Palm Jumeirah recording 3% quarter-on-quarter growth due to restricted supply and ever-present demand.

One of the city's most popular communities, Dubai Marina, has seen the impact of long-term construction and traffic congestion woes, with a further 2% decline in rental rates in the last quarter as tenants look to relocate to more accessible areas.

JLT is definitely one to watch at the moment. With quarter-on-quarter rental rate stability and a 42% YoY increase, a two-bedroom apartment is currently leasing for up to Dh150,000.

Read about the fear of oversupply in the Dubai market

Source: John Stevens, Special to Freehold

The writer is Managing Director - Asteco


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