Lower asset prices and tight supply drive rental yields up |
|
Rental yields expanded in October on the back of lower asset prices and a tight supply market, as gross yields increased to 6.3 per cent from 4.7 per cent in September, said a new report.
"Rental demand is likely to remain robust as we sense potential buyers are deferring their plans until there is better visibility in the credit markets," HSBC Holdings said in a monthly real estate report.
Yield expansion reflects the market tightness. The shortage of stock has been further exacerbated by a clear shift from holding to selling, as investors try to exit the market, Majed Azzam, co-author of the report, said.
"This trend in part reflects risk aversion in the current period of uncertainty, especially since rental regulation in Dubai favours tenants (rental caps, anti-eviction laws, etc), making tenanted units less attractive."
Additionally, new government regulations prohibiting the sharing of villas by more than one family are likely to add to pent-up demand, particularly for smaller units. On the other hand, the change in visa requirements for relatives, whereby proof of either ownership or tenancy of a two-bedroom residence is required, should increase demand for larger units, Azzam said. Meanwhile, secondary prices showed weakness for the first time in October as property prices in Dubai and Abu Dhabi fell.
Prices in Dubai fell four per cent from September, while prices in Abu Dhabi were down five per cent. Villas in Dubai were hit, with the average price falling 19 per cent between September and October on the back of tightening lending conditions.
The decline in villa prices had more to do with "affordability than anything else, especially in light of lower mortgage loan to values (LTV)", HSBC said.
The average villa price of $2.6 million (Dh9.5m) in September would now require a minimum down payment of $650,000.
Average apartment asking prices in Dubai were flat month-on-month, despite the majority of development prices being down. "This is due to a rise in the weighting of high-end projects," Azzam said.
Although prices in Abu Dhabi fell due to the emirate's "heavy off-plan rating", the capital offers the "best shelter for investors and provides good appreciation potential", the report said.
Apartments were down six per cent month-on-month, villas were up four per cent due to their scarcity. The report expects the market in Abu Dhabi to remain tight near term, as pent-up demand alone is more than enough to meet supply coming on to the market in the next two years.
Raha Gardens, the only development that is ready, was down two per cent month-on-month.
"We believe, similar to Dubai, this is because of the lower LTVs and thus affordability. However, it could also be related to the development's liquidity as it is only open to local investors," HSBC said.
HSBC said in its September report that property prices had surged in the UAE, with Dubai and Abu Dhabi registering an increase of 17 per cent and 11 per cent month-on-month.
"Price growth is picking up again after a brief moderation during the summer. However, while prices remain on an upward spiral, rental rates in Dubai seem to be stabilising, thereby compressing rental yields. This shows we have reached a level where affordability is getting breached," the bank had said.
Loan to values ratio falls
As mortgage rates have risen on average by 100 basis points, loan-to-values for apartments have fallen from an average of 85 per cent to 60 per cent and for villas from 85 per cent to 75 per cent.
The average down payment increased from $98,000 to $220,000, but the average monthly mortgage payment is down from $7,100 to $5,750, a decline of 20 per cent month-on-month. The average monthly rental payment is up from $3,600 to $4,500, 25 per cent increase, which means it now covers 80 per cent of the mortgage payment once the initial down payment is done.
By Parag Deulgaonkar
© Emirates Business 24/7 2008
x
DISCLAIMER
Zawya is a distributor (and not a publisher) of content supplied by third parties and subscribers. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by those third parties, including information providers, subscribers or other users of the Service, are those of the respective author(s) or distributor(s) and not of the Company. The Company neither endorses nor is responsible for the accuracy or reliability of any opinion, advice or statement made on the Service by anyone other than authorized Service employee spokespersons while acting in their official capacities. The Company is not responsible for any infringement of intellectual property rights or breach of any applicable law or regulation, including regulation in relation to financial services or the distribution of financial products, defamation, data protection, telecommunications (including regulations relating to excessive use, spamming or other abusive activities) or obscene, offensive or illegal content). Under no circumstances will the Company be liable for any loss or damage caused by a member's reliance on information obtained through the Service. It is the responsibility of member to evaluate the accuracy, completeness or usefulness of any information, opinion, advice or other content available through the Service. Please seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
Read the full Member Agreement
http://www.zawya.com/legal/NewsLetter.cfm?name=disclaimer
Zawya is a distributor (and not a publisher) of content supplied by third parties and subscribers. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by those third parties, including information providers, subscribers or other users of the Service, are those of the respective author(s) or distributor(s) and not of the Company. The Company neither endorses nor is responsible for the accuracy or reliability of any opinion, advice or statement made on the Service by anyone other than authorized Service employee spokespersons while acting in their official capacities. The Company is not responsible for any infringement of intellectual property rights or breach of any applicable law or regulation, including regulation in relation to financial services or the distribution of financial products, defamation, data protection, telecommunications (including regulations relating to excessive use, spamming or other abusive activities) or obscene, offensive or illegal content). Under no circumstances will the Company be liable for any loss or damage caused by a member's reliance on information obtained through the Service. It is the responsibility of member to evaluate the accuracy, completeness or usefulness of any information, opinion, advice or other content available through the Service. Please seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
Read the full Member Agreement
http://www.zawya.com/legal/NewsLetter.cfm?name=disclaimer
Community Comments (0) - 
Comment on this article 
Comment on this article
The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.
Loading ...
Zawya Comment Policy:
-
Zawya encourages you to add a comment to this discussion. You agree that when you add content to this discussion your comments will not:
1.1 Contain any material which is libelous or defamatory of any person, is obscene, offensive, hateful or inflammatory or causes damage to the reputation of any person or organisation.
1.2 Promote sexually explicit material, violence, discrimination based on race, sex, religion, nationality, disability, sexual orientation or age or any illegal activity.
1.3 Be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence.
1.4 Be threatening, abuse or invade another's privacy, or cause annoyance, inconvenience or needless anxiety.
1.5 Be used to impersonate any person, to misrepresent your identity or affiliation with any person, or be likely to deceive any person.
1.6 Give the impression that they represent Zawya.
1.7 Advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse. - The content posted on www.zawya.com is created by members of the public. The views expressed are theirs and unless specifically stated are not those of Zawya. Zawya reserves the right to review all comments prior to posting and edit or delete any contribution, but Zawya is not responsible for and can not be held liable for any content posted by members of the public on www.zawya.com.
- Zawya is not responsible for the availability or content of any third party sites that are accessible through www.zawya.com. Any links to third party websites from www.zawya.com do not amount to any endorsement of that site by Zawya and any use of that site by you is at your own risk.
- By submitting your comment, you hereby give Zawya the right, but not the obligation, to post, air, edit, exhibit, telecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comments worldwide, in perpetuity.
Community Buzz
Stories
Companies
Most viewed companies by Community in the last 24 hrs
| Company Name | Country | Industry |
| Consolidated Contractors Company | Overseas | Construction and Design |
| Saudi Binladin Group | Saudi Arabia | Construction and Design |
| Saudi Electricity Company | Saudi Arabia | Electric Utilities |
| Maroc Télécom | Morocco | Telecommunications Services |
| Dubai Electricity and Water Authority | UAE | Electric Utilities |
| National Oil Corporation - Libya | Libya | Oil |
| Air Arabia | UAE | Transportation Services |
| Saudi Telecom | Saudi Arabia | Telecommunications Services |
| Ministry of Health - Saudi Arabia | Saudi Arabia | Ministries and Municipalities |
| Fluor Mideast | Region-wide | Construction and Design |
Projects
Most viewed projects by Community in the last 24 hrs
| Project Name | Country | Sector |
| ADNOC/ConocoPhillips - Sour Gas Fields Development - Shah Field | UAE | Oil and Gas |
| Takreer - Ruwais Refinery Expansion | UAE | Oil and Gas |
| SATORP - Jubail Refinery and Petrochemical Complex | Saudi Arabia | Oil and Gas |
| Abu Dhabi Ports Company - Khalifa Port and Industrial Zone (KPIZ) | UAE | Infrastructure |
| ENEC - Nuclear Power Plant | UAE | Power and Water |
| Emirates Aluminium (EMAL) - Smelter Complex - Phase 1 | UAE | Industry |
| Aramco/Dow Chemical - Ras Tanura Integrated Refinery and Petrochemicals Complex | Saudi Arabia | Oil and Gas |
| Abu Dhabi DOT - Abu Dhabi Metro | UAE | Infrastructure |
| Qatar Foundation - Sidra Medical and Research Center | Qatar | Real Estate |
| IGD - Gasco - Habshan 5 Gas Processing Plant | UAE | Oil and Gas |