Stability returns to upscale properties

Monday, Jul 11, 2011

Gulf News

Dubai: Even as new stock looms on the horizon elsewhere in the city, Dubais upscale and established communities are achieving a degree of stability. But there is no such stability at the lower end of the freehold scale.

Consequently, there is no immediate threat to properties in Discovery Gardens and International City losing their affordability status. Or for that matter, at any time in the near future.

In the second quarter, units in Discovery Gardens dropped 11 per cent in rental value, while International City recorded a 4 per cent drop. Both areas comprise a significant number of apartment units in fact, Nakheel has recently released a large number of apartments in Discovery Gardens, which has impacted rents, said a new report by Asteco which looks at trends in the April to June period.

But those developments where there are only limited additions taking place, or none at all, theres more stability. We are seeing an increasing number of investors coming into the market for high-end properties which are showing good returns or proof of appreciation such as the Downtown, said Mahendra Singh, partner at SPF Realty.

Staggered

Downtown has only two handovers due this year; this number of properties will not rock the current supply or prices of ready properties.

In areas such as Jumeirah Village, handovers seem to be staggered well to ensure there is no chance of a major over-supply happening all of a sudden.

The contrasting fortunes of villa rentals in the Green Community and those in Mirdif also offer stark evidence. Villa rentals in the former actually recorded a slight increase due to limited new availability, while in Mirdif, where a number of villas have entered the market in the Shurooq community, recorded a drop in lease rates.

Villas, by and large, have had a better time of it in recent quarters. Asking rates in the strictly high-end Emirates Living cluster are up by 10 to 15 per cent in the last three months, according to Tomas Gassemi of The Property Store.

Whether the property owners are just trying to inflate their asking rates or actually finding owners remains to be seen. But these are all indicators of Dubais property market getting location specific rather than being one homogenous entity.

Elsewhere in the city, the trends are mixed. Continuous handovers on Emirates Road (such as The Villa) and expected delivery of villas on Shaikh Zayed Road (Jumeirah Park) later this year will adversely affect sales prices in surrounding developments, said the Asteco report.

Across the board, apartment sales values were 3 per cent lower on average in Dubai, a factor of the new supply coming on-line, the Asteco report added. Locations such as Jumeirah Lakes Towers and Dubai Marina continue to be under pressure from the recent handovers as well as the imminent ones.

Purchase favoured

But there are hints of a few positives starting to come to the surface. A significant number of people on medium-term contracts with respectable housing allowances opting to use the money towards the purchase of a home rather than renting one, it said.

The moot point here is whether there are enough of them around to push property transactions and the average value per transaction to a modicum of health.

In this regard, the latent investor interest only applies to existing property. Off-plan remains a cuss word for many. Or has the sentiment changed?

The only area which is off-plan and we see some enquiries is Jumeirah Park, mainly because it is from the master developer, said Gassemi. Also, the price and location are attracting both end-users and investors.

Interest in properties that are some six months away from their completion schedules is also getting some traction. But anything beyond six months and the chances of an investor getting interested are remote, if not non-existent.

Six months is the maximum limit we have seen interest in off-plan properties, said Singh.

For developers with projects yet to reach that mark, they can find little comfort here. Their only chance at redemption is to get the projects completed without further delays and hope these will be able to stand the test of quality.

It all boils down to a propertys fundamentals. And thats not such a bad thing.

Dubais property market and investors have yet to take firm positions on what the recent visa extension means for real estate investments in the near- to mid-term.

The extension of the property visa period has been eagerly awaited, and although it will increase the number of buyers significantly, it will not solve the issue of over-supply in the short- to medium-term, said the Asteco report.

Reducing the property value and fixed income criteria would boost investment in Dubai and open the market to other potential buyers such as young professionals and retirees.

The property visa period has been extended from six months to three years. However, clarifications regarding the minimum property value of Dh1 million and a minimum fixed income of Dh10,000 per month to qualify for the visa have yet to announced.

Drop in demand for commercial units

If Dubais residential space is coming to terms with the excess supply, no such equilibrium exists for the commercial side.

Despite increased enquiry levels, rental rates will continue to decline as supply is expected to outweigh demand for the short- to medium-term, said the Asteco report.

Demand for units in proximity to the Metro has increased; however affordability still precedes location, especially for back office operations, which deters potential tenants who are not in the position to pay the premium.

On the sales side, office values in Business Bay and Jumeirah Lakes Towers dropped by 11 and 12 per cent during the second quarter.

Principally, this was caused by the ongoing construction activity and the significant amount of supply that is expected in the medium term, according to the Asteco report.

During the second quarter, sales transactions on offices were down by 6 per cent.

Two-bedroom apartment rates fall

Two-bedroom apartments in Dubai and Abu Dhabi remained under pressure during the second quarter, recording a decline of 11 per cent and 9 per cent respectively.

In the three-bedroom category, Dubai saw a 4 per cent drop during the latest three-month period ending in June, while Abu Dhabis was steeper at 9 per cent.

The same trends were discernible in the studio and one-bedroom formats as well in the two main emirates. Meanwhile, the UAE residents efforts to upgrade and make full use of the soft market are still visible.

Asteco has witnessed a large number of tenants moving from two- or three-bedroom apartments to townhouses or small villas, the report said.

This will eventually result in landlords having to adjust rentals levels for larger apartment types in order to retain or attract tenants.

By Manoj Nair, Associate Editor