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The latest statistics for Dubai indicate a new era is on the horizon for the residential market. This, as rental rates for apartments and villas across the city declined by an average of 2% in 2015 – Q2 versus Q1 (and 5% year-on-year for villas), with marked declines at the higher-priced end of the market.
Homes for sale also recorded an average fall of 2%, with some areas performing significantly worse than the others, dropping 11% year-on-year for villas and apartments decreasing by 7%.
The softening in Dubai's residential rental market has appeared earlier than originally anticipated, offering tenants in the emirate an opportunity to recoup somewhat after several tough years of high rents.
The decrease was felt throughout the market and areas with a significant amount of completed new supply were the most affected.
Additionally, some buyers of nearly completed buildings were keen to sell at negative premiums due to the imminent completion of the building and the requirement of final payment.
The highest quarter-on-quarter apartment rental declines were recorded on Shaikh Zayed Road (7%), Palm Jumeirah (6%) and Jumeirah Beach Residence (7%).
Conversely, the International Media Production Zone (IMPZ), Dubai Sports City (DSC) and Dubai Silicon Oasis (DSO) recorded higher rentals, between 6% and 13%, compared with the 2014 numbers, due to the completion of community infrastructure and increased occupancy levels, making them popular mid-market residential areas.
In the villa segment, the handover of projects like Casa Villas at Arabian Ranches brought rental rates for the area down by 7% quarter-on-quarter, and 15% year-on-year.
Over at the Mudon community, the ongoing handover of its three and four-bedroom townhouses, with competitive pricing starting at Dh175,000 per annum, put pressure on the landlords of neighbouring developments to secure and retain existing tenants.
We even saw a 6% decline in Palm Jumeirah, with the handover of the lower specification Palma Residences townhouses impacting rental rates due to their lower price band.
So, we are seeing a similar tenant-friendly trend in the broader villa market, with more flexible installment plans, for example, and this is set to continue as areas like Dubailand are expected to continue to deliver new supply.
Apartment sales in Q2 were marked by a shift towards more affordable properties with locations such as IMPZ, DSO, International City, and the recently handed over Queue Point and Sky Courts developments in Dubailand witnessing sustained demand as yields for studio and one-bedroom apartments, in particular, remained attractive.
Affordability was also a priority for villa investors, with Jumeirah Village recording a high number of transactions for some of the townhouse properties by one developer, and Indigo Ville priced at Dh700,000 up to Dh1.2 million.
In comparison, larger properties, including five and six-bedroom villas, saw minimal transactions completing in communities such as The Villa, also in Dubailand, and DSC, despite strong rental demand.
However, despite strong transaction levels, the increasingly competitive market environment with a lot of new supply means that the 2% quarter-on-quarter decline is not going to be a temporary blip, with more pressure on owners to review their selling price still to come.
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Source: John Stevens, Special to Freehold
The author is Managing Director - Asteco