Yields stabilise in Dubai’s property market

‘Dubai realty offers the higher yields …’ has been the marketing theme developers with off-plan launches of high-end property have been putting out all through the recent launches. How valid is their contention?

“Average yields are generally higher here due to the (relative) low home ownership percentage and the transitory nature of Dubai population,” said Robin Teh, Country Manager at Chestertons Mena.

“Yields have started getting attractive (ever) since the market cooled and property values have corrected higher than the rents. Lower yields are a sign of overvalued property and signal correction in the market.

“Total yields increase if rental increases are higher than that in property values. However, in the last few years, both rentals are sales prices increased at an equal rate and yields had been falling. Both variables had seen steep rises until 2014.”

Locations such as Dubai Marina and Downtown Dubai have seen yield stabilisation due to the steep increase in property values between 2012 and early 2014. Average yields are now between 3-5 per cent.

Across all property asset classes, net yields in Dubai average 7.1 per cent in the first three months of the year, according to Knight Frank. This is ‘indicative of the pent-up investor demand for well-let real estate in the emirate,’ it reports.

‘The figure remained stable despite upward pressure from residential yields for whole buildings, which inched up for the third consecutive quarter in Q1-2015 (driven by small falls in capital values and broadly stable rents).

‘Across the commercial property sectors, yields have been flat over the past year, after having trended down in the four years preceding it.’

And what of the future? “Over the past 18 months, the spread between all-property yields and the Dubai (10-year) government bond has widened beyond its long-run average — almost entirely due to the receding “risk-free” rate,” said Khawar Khan, Research Manager at Knight Frank.

“While the US Federal Reserve has indicated that it is likely to push up interest rates — which in turn should help to close the gap — our suspicion is that prime all-property yields will also edge down.

“This is predicated on the fact that historically there has been a reasonable correlation between changes in prime all-property yields and GDP growth in Dubai — which will accelerate in 2015. In other words, faster economic growth should lead to further hardening of yields in the near-term.”



Source: Manoj Nair, Associate Editor, gulfnews.com


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