Expert Eye: H1 report on Abu Dhabi and Dubai realty

Expert EyeJohn Stevens

We’ve seen a general slowdown in real estate transactions in all emirates; however, there has been a marked difference between Abu Dhabi and Dubai.

Dubai experienced a slow first six months but for different reasons, with developers slowing the pace of project completion and handover due to the forecasted oversupply of residential properties, prompting a slight decrease of around 2 and 1 per cent, respectively on rental rates for apartments and villas.

The cumulative effect of falling oil prices and resulting cuts to existing government budgets over the last 18 months have been the catalysts for the slowdown in Abu Dhabi, where resulting job cuts in the last six to eight months have led to H1 2016 residential rental rate declines of 3 per cent on average, with high-end units down by 4 per cent, and a subdued sales market.

We are seeing two unique pictures emerge for the residential sector in both emirates. What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money.

We are seeing signs of this in Abu Dhabi with a migration or downsizing from high-end locations like Reem and Saadiyat Islands to more affordable developments. This has led to a rise in vacancy rates for larger units, which could prompt a surge in rental rates for smaller units in more desirable buildings.

     See related story: Abu Dhabi's residential market to slow down in 2016

Dubai added 2,000 new mid-level and affordable apartments and 200 villas and townhouses to the mix in H1: Siraj Tower at Arjan, 400 units in Dubai Silicon Oasis, Ajmal Sarah Tower in Dubailand, Canal Residence West at Dubai Sports City and Osaimi Apartments at Palm Jumeirah.

There is substantial interest in Jumeirah Village from both end-users and investors, with buyers recognising the potential of the area from a locational point of view in comparison to newer projects launched south of Shaikh Mohammed Bin Zayed Road.

Apartment prices in most communities continued to be under pressure with an overall price reduction of 3 per cent in H1; however, they are still 64 per cent higher than 2011, when, on average, they stood below Dh800. For the villa market, rates were broadly stable over the last six months, with an average increase of 0.3 per cent, with a trend towards smaller two to four-bedroom homes in communities like Arabian Ranches, The Springs and Mudon still prevalent.

We expect to see further marginal declines in values in the next six months as the market is likely to bottom out by yearend with, at most, a 5 per cent decline, making this the time to buy. This could be offset by potential increased transaction volume as low prices unlock demand with renewed interest from single-unit buyers for soon-to-be-completed buildings. From a rental perspective, demand for studio, one and two-bedroom units is likely to remain strong, with a potential increase in rates in some areas as occupancy levels improve.

Limited supply of new H1 released stock in Abu Dhabi helped constrain any major reduction in rental rates, with just 800 apartments added including Wave Tower on Reem Island, resulting in an overall drop of 3 per cent. This trend was replicated in the villa market at a reduced rate of just 1 per cent.

Transaction levels in the capital have been largely quiet, with asking rates still relatively higher in comparison to other emirates despite owners putting units back onto the market, and the ongoing lack of affordable units stymying investors with limited budgets.

We are still seeing good levels of demand for affordable products like Al Ghadeer and Al Reef townhouses, with no decline in sales prices, which confirms the appeal (and dearth) of this kind of product in the market.

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


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