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The real estate sector, which has been instrumental in driving national economic activity over the past 18 months, is showing signs of stabilising, with the pace of growth of residential rents and values slowing down in Abu Dhabi, Dubai and Sharjah, according to a new report by real estate services firm Cluttons.
The report states it's too early to assess the impact of this slowdown on the economy. ''With other segments of the economy still gaining strength, any loss in the total contribution of real estate is likely to be offset by other resilient and fast-growing nonoil sectors such as financial and business services, manufacturing, retail, trade, tourism and hospitality,'' it stated.
During the second quarter, Abu Dhabi's freehold market recorded an 11.4-percent rise in capital values, which was 48 per cent above the same period last year. Villa prices rose by 15.1 per cent, while it was 8.4 per cent for apartments. The capital registered a small rise in rents — only 0.9 per cent — during the second quarter, down from 1.9 per cent in the first quarter. ''With an affordability threshold now clearly breached for many households, rent increases have begun to slow,'' the report said.
While there was a 51 per cent rise in house prices across Dubai's freehold areas last year, average values in the second quarter of this year were still 18.5 per cent below the all-time market high during the third quarter of 2008. This was due to price containment measures implemented by the government. The total rise in house prices during the first half was just 3.8 per cent, although values still stand 18.5 per cent higher than this time last year. The number of residential transactions throughout the first half was 12 per cent lower than the same period last year, based on figures from the Dubai Land Department. Villas saw a 48 per cent drop, although high-quality villa schemes by reputed developers continue to do well. The city's freehold areas registered a 1.4 per cent rise in rents during the second quarter, following a 1.5 per cent increase during the first quarter, bringing total growth during the first half of the year to just under 3 per cent.
''In real terms, the rental value growth has been relatively flat, after inflation of 2.7 per cent over the same period is factored in,'' the report said. ''Despite this, average rents remain 8.4 per cent ahead of values during the same period last year.''
Villas experienced a marginal 1.1 per cent rent increase during the second quarter, although most of the growth was experienced at the lower end of the villa market, with high-end and mid-range villas experiencing almost no change in rents.
In Sharjah, the strong demand from residential tenants and a relatively limited supply pipeline have helped drive rents up during the second quarter by 5.7 per cent, following a 10.8 per cent rise in the first quarter. Overall rental growth during the first six months reached 17 per cent.
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Source: Property Weekly