Wednesday, Aug 02, 2017
Dubai
Further declines in home rents across Dubai’s freehold clusters are projected before they start to stabilise at some of the more popular locations some time next year. But rents in secondary locations will continue to be under pressure, says a new forecast from Core Savills.
As such rental changes seem to have had negligible effect on Dubai’s freehold demand. But what soft rents have managed to do is slow the recovery in sales values.
“Although yields have contracted, they are still northwards of 7.5 per cent for most apartment districts and 5.5-6 per cent for mid segment villa districts — relatively higher than other forms of investments in the region,” the consultancy notes in the report.
According to David Godchaux, CEO of Core Saviils, “This led us to run a simulation on 20 prominent properties across Dubai to gauge at what rental level would the yield cease to be attractive to investors. Our findings reflected that rents would have to be between 25-40 per cent (depending on the location) lower than the present level to start having a notable negative impact on the investor market and prices — even with the present subdued rental market this is an unlikely probability over the next 24 months.”
The agency reckons that locations such Discovery Gardens and Jumeirah Village should see a build up in rental rate pressures. In the latter’s case, it could be because of more supply emerging through the pipeline, while with the former it is about nearly communities offering better value for money for tenants and with newer amenities.
Of the slightly more upmarket locations, the towers at Dubai Marina and JLT have a sunny forecast on their rental prospects. The neighbourhood that should shine brightest is Jumeirah and its freehold opportunities.
“With other aspects of demand such as relatively positive economic outlook, a marginal uptick in job creation and adjustment to stagnant oil prices at around $50 per barrel, we are cautiously optimistic on mid-market sale prices while expecting further room for softening in the prime segment,” said Godchaux.
“We remain watchful over growing off-plan sales and lucrative payment plans which continue to undercut both low and mid segment sale prices as well as adding systemic risk to the overall market — something which might require further regulatory strengthening.”
Dubai real estate’s first-half performance has been relatively healthy, being able to tap into improving investor appetite while end-user buying support was steady. But concerns are being voiced about the sheer number of new off plan launches that happened and with more on the way.
Staff Report
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