New supply could soften Dubai rents

A further 12,000 apartments and 2,000 villas will be added to existing inventoryJohn Stevens, Managing Director, Asteco

The latest research has unveiled a predicted softening of sales activity in apartments and villas in Dubai this year due to upcoming supply in the market following declining sales and rental return in H2 2014.

Rental rates rose across all three property types in 2014, with apartments showing average year-on-year growth of 7%, 4% for villas and 12% for offices.

The impact of tenants choosing to remain in their existing accommodation rather than relocating to an established community or a new development resulted in a slowdown in activity.

The citywide annual average for a two-bedroom apartment in Dubai was Dh122,000 at the end of the year, with an average 6% year-on-year rental rate increase recorded in Q4 2014.

A further 12,000 apartments as well as over 2,000 villas will be expected to be added to the city’s existing inventory in 2015.

This is good news for tenants across the emirate, and a more tempered rental environment is especially welcomed when you consider that since 2011, apartment rents have increased by 65% and villas by 55%.

Villa rental rates are anticipated to remain relatively stable in the most desirable areas, with the research flagging marginal declines in less desirable areas.

Looking beyond this year, a more significant drop in rental rates could be on the cards from 2016 onwards as the large number of projects announced in 2013 and 2014 (an estimated 12,000 to 14,000 villa units) is completed.

Apartment rents increased by 65% since 2011, but are still 25% lower than in 2008. Rental rates are 7% higher on average compared to last year.

Villa rates increased by approximately 55% since their lowest in 2011, with Q4 2014 rates still 20% lower than in Q4 2008, but up 4% since last year.

Research also marked 2014 as a year of stabilization with sales price increases of 4%, 1% and 9%, respectively for apartments, villas and offices.

In a year of two halves, Dubai’s residential sales market recorded moderate growth in the first half of the year, with significant slowdown in market activity and sales transactions in H2 2014.

Villa sales prices were stable in the final quarter of 2014 compared with Q4 2013, although they fluctuated over the year.

The Meadows and The Springs, both in Emirates Living, and Arabian Ranches communities account for 50% of all villa sales.

The Palm Jumeirah was the only development to experience an increase in Q4 2008 prices, up 4%, underscoring the popularity of The Palm with both local and international buyers.

Underscoring reduced risk appetite, new lending regulations and fees making the purchase process more expensive, the market saw a 25% reduction in villa and apartment transactions in 2014 against 2013 figures (source: Reidin).

Indeed, transaction levels fell by 40% year-on-year in Q4 2014 alone.

Off-plan sales also slowed with the added burden of newly completed products offering buyers an increasing choice of investment opportunities.

Sales prices for apartments ended 2014 showing a 7% increase compared with Q4 2013, but with additional supply on the way and ongoing macro-economic challenges, significant market growth is unlikely.

The popular Dubai Marina (including Jumeirah Beach Residence), together with International City, Downtown Dubai and Jumeirah Lakes Towers, witnessed the most sales transactions in 2014.

Source: John Stevens, Managing Director, Asteco


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