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| 10 October, 2017

Dubai market heading for oversupply of homes - report

A view of Dubai at sunset showing the Burj Khalifa and Downtown Dubai.  Image used for illustrative purpose.

A view of Dubai at sunset showing the Burj Khalifa and Downtown Dubai. Image used for illustrative purpose.

Dubai Tourism/handout via Thomson Reuters Zawya
Property consultancy JLL has warned of a potential oversupply of new homes in the Dubai market.

The company's Q3 2017 Dubai Real Estate Market Overview report states that last month's Cityscape Global event saw sizeable new launches from major developers like Nakheel, which announced 3.2 billion UAE dirhams ($871.2 million) worth of new projects, and Deyaar (one billion UAE dirhams of projects), even though there is already a pipeline of 80,000 homes under construction that are scheduled to complete by the end of 2019.

In a telephone interview with Zawya on Tuesday, JLL Mena research manager Asma Dakkak said: "The cause for concern in the residential market is the potential of oversupply. If you'd been around Cityscape, you would have seen a lot of projects being launched by large-scale developers - a lot of mega-scale projects.” 

There are currently about 480,000 homes built in Dubai, meaning that the total size of the market is due to increase by 16.67 percent in just over two years if all 80,000 homes complete on schedule, she added. However, in recent years the materialisation rate - the number of homes actually completed against scheduled numbers – stands at around 25-30 percent.

New projects are being brought forward on the back of improved investor sentiment, Dakkak said, citing a 28 percent year-on-year increase in total transactions (excluding land deals) during the first nine months of the year. 

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"The counterargument would be that...we feel that all of these transactions are off the back of really attractive payment terms and attractive incentives that are being offered by the developers," said Dakkak.

"Which takes me to my point of the potential of oversupply… who is going to be occupying these units?" 

Downtown, Marina still popular
She said that anecdotal evidence also points towards higher vacancy rates within existing buildings, with tenants being able to renegotiate rents downwards by between 5-7 percent, on average.

"This is a very broad average - it's not indicative of every building in Dubai," she added. 

She also said vacancies were more likely in projects in outlying areas of the city. "Demand for prime buildings in DIFC, Downtown or the Marina will continue."

Softening demand is also affecting the city's commercial property market, with a global slowdown blamed for companies reducing headcount or reining in expansion plans and subletting excess space, the report said. Although office rents have only dropped by 1.6 percent year-on-year to 1,892 UAE dirhams per square metre by the end of September, landlords are generally offering other incentives, including a waiving of any refurbishment costs or reduced service charges, according to Dakkak. 

Many of the city's developers remain bullish about its prospects, though. On Sunday, Damac Properties said in a press release that demand was continuing to rise for its hotel apartment projects as investors looked to buy units ahead an anticipated surge in tourism in the city for Expo 2020.

“Dubai continues to expand so investors and end users are increasingly attracted to the proposition of living in new, affordable communities that offer the same amenities available in busy, metropolitan areas," Niall McLoughlin, senior vice president at Damac said in the release. "We have noticed a marked increase in enquiries and sales transactions for these projects.”

© ZAWYA 2017