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The past year saw stability across all asset classes and a decline in residential rental rates due to the release of new units, with more pressure expected with new releases this year.
Affordability will once again be the mantra for 2016 and the main purchase driver, especially in desirable but high-priced developments such as Dubai Marina and Jumeirah Beach Residence and the Palm Jumeirah.
The apartment rental market also remained relatively unchanged, with only moderate increases seen in areas that had witnessed strong declines previously, especially at the higher end. Year-on-year apartment rental rates also recorded a nominal decline.
By the end of last year around 7,000 new apartments were added to Dubai’s inventory, plus around 13,000 units this year, which will continue to exert 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 and we have seen some landlords already increase the number of rental payment instalments.
Villa sales are down and rental rates have remained relatively unchanged, with some areas even witnessing moderate increases as take-up in newer communities such as Arabian Ranches phase two and Mudon improved.
With the handover of projects like Casa Villas at Arabian Ranches and the handover of competitively priced three and four-bedroom town houses in the Mudon community, there has undoubtedly been pressure on landlords of neighbouring developments to secure and retain existing tenants. With an expected delivery of 9,000 new villas next 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 town houses by Nakheel and Indigo Ville in Jumeirah Village earlier this year was countered by a decline in sales demand for larger properties in previously popular communities like The Villa and 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’s rental rates remain cheaper. Comparing like-for-like in Singapore for example, Downtown Dubai is still a cheaper option and offers good returns. In the commercial sector, 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 projects are delivered, tenants will have more negotiating power, even with the forecast increase in new residents linked to the emir-ate’s hosting of Expo.
Source: John Stevens, Special to Property Weekly
The author is Managing Director of real estate firm Asteco.