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Dubai has been solidifying its position as a regional safe haven against a backdrop of exchange rate fluctuations, uncertainty in global markets and oil price slowdown. This has characterized property transactions in the UAE in the previous quarter, where the residential and commercial property sector continued to behave differently.
A January report by real estate consultancy Phidar Advisory says that residential prices in Dubai dropped in the fourth quarter compared with the previous quarter, and declined through the past year. However, the prognosis for Dubai continues to be good. A report by advisory services company Deloitte says, ''Despite the decline in average residential sales prices in Dubai during 2015, price growth over the last four years reflects a compound annual growth rate (CAGR) of approximately 11.6 per cent, which outperforms most other leading global cities.''
Phidar's Dubai Real Estate International Demand Index, a composite of GDP and foreign currency z-scores for 22 countries, functions as an indicator to assess the propensity for attracting capital inflows into Dubai real estate. By the end of 2015, it dropped 83 per cent, primarily driven by exchange rate fluctuations.
Cavendish Maxwell's Q4 2015 report contains similar figures, noting an average decline of 1 per cent in apartment and villa prices in the quarter, albeit with location-specific fluctuations. ''International City declined slightly faster at 2 per cent,'' the report states. ''During the past 12 months, apartment price declines varied significantly across Dubai, dropping an average of 6 per cent, as peripheral locations such as Discovery Gardens, International City and Motor City declined the most at 9 and 10 per cent respectively.''
Overall, the decline in villa prices was stemmed at 1 per cent, slower than the 2 per cent in the third quarter. On average, villa prices have declined by approximately 8 per cent in the last 12 months. ''Prices at more established villa communities such as The Meadows and Springs declined by 12 per cent and 18 per cent respectively, as buyers opted to purchase in the newer and upcoming communities,'' according to the Cavendish Maxwell report.
Prices in context
The current market condition is also a reflection of the rapid growth experienced in 2013 and 2014. ''Residential sales price declines in Dubai in 2015 can be attributed to a number of factors, including exceptional growth experienced during 2013 and 2014, which at 24 per cent and 14 per cent respectively, was significantly in excess of inflation [1.3 per cent in 2013 and 3.4 per cent in 2014],'' according to Deloitte's report.
The average value of monthly transaction in Dubai last year (Dh1.7 million) was lower than in 2014 (Dh2 million). This reflects a shift towards more affordable homes. Last year 77 per cent of residential sales transactions were within the Dh1 million-Dh2 million bracket, an increase of 9 per cent compared with 2014. The year also saw average residential sales prices across Dubai decline by approximately 10 per cent for villas and 9 per cent for apartments.
The supply side is seeing interesting developments with estimates varying through the year in response to the prevailing trends. Phidar says that approximately 8,800 additional residential units entered Dubai last year. Over 70 per cent were apartments, with the rest being villas and town houses. Major completions in 2015 were in Dubai Sports City, Dubai Silicon Oasis, Dubailand and Business Bay.
Approximately 7,000 units have been delayed from 2015-16. Excluding those, 30,000 units have been scheduled for delivery this year, which could also be subject to potential delays. ''Recent comments from the market highlight the importance of understanding the methodology behind the data,'' says Jesse Downs, Managing Director of Phidar Advisory. ''This is a positive development. Stakeholders should be asking these questions.''
Alan Robertson, CEO of JLL Middle East and North Africa (Mena), says JLL's project completion estimates are based on figures from developers, although these often don't match actual completion numbers. ''In 2015, we said 25,000 [will be completed] and less than 8,000 were completed. That means 30-40 per cent materialisation.''
According to JLL the materialization rate of proposed projects has been relatively low over the past five years, with only 30 per cent of residential projects and 45 per cent of office projects completed on schedule.
''Financing issues, contractual disputes, delays in licensing or approvals, developers holding back projects in line with slower market conditions — all these combine to continue or to delay [a project], which is not necessarily a bad thing,'' says Craig Plumb, Head of Research at JLL Mena. ''They stabilise the market so there is no oversupply.''
Rents have seen marginal declines. ''In 2015, apartment lease rates decreased a nominal 1.9 per cent, while sale prices decreased 12.7 per cent, pushing gross yields up to 7.7 per cent, an annual gain of 70 basis points,'' according to a Phidar report. Lease rates for villas decreased 5.5 per cent and sale prices decreased 14.8 per cent, which pushed yields up to 5.1 per cent, a gain of 50 basis point in 2015.
Cavendish Maxwell says apartment rents slightly declined by 1 per cent in the fourth quarter in Dubai and approximately 3 per cent compared with the first quarter last year. ''On average, studio rents have increased while one- and two-bedder rents have declined.''
Villa rents have followed a similar trend as apartments, with an average drop of 1 per cent compared with the third quarter and 3 per cent compared with the first quarter last year.
Cavendish Maxwell reports that in the fourth quarter Abu Dhabi apartment prices declined by 1 per cent across the investment zones, including Al Ghadeer, Al Raha Beach, Al Reef Downtown, Al Reem Island and Saadiyat Beach Residences. ''In the last 12 months, Abu Dhabi apartment prices have dropped an average of 3 per cent, a slower rate of decline than that of neighbouring Dubai,'' the report states.
Rents in areas tracked by the Property Monitor Index (Al Raha Gardens, Al Reef, Saadiyat Beach Villas) saw a slight decline in the villa segment of around 1 per cent in the fourth quarter.
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Source: Shalini Seth, Special to Property Weekly