Real estate outlook: Dubai's property values will continue to face pressure in 2021

The huge influx of supply and the decline in population will be contributing factors

  
Sheikh Zayed Road, Dubai, UAE. Image used for illustrative purpose.

Sheikh Zayed Road, Dubai, UAE. Image used for illustrative purpose.

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Dubai’s residential property market, which has recently seen a surge in demand from investors and first-time buyers, is expected to continue to face pressure this year, according to a new analysis. 

The values of apartments, villas and townhouses across Dubai and Abu Dhabi fell in 2020, primarily due to a fall in demand caused by the coronavirus pandemic. 

The size of the population in both emirates is estimated to have fallen by 5 percent last year as expatriates hit by job losses opted to return to their home countries. “While population growth is expected to return in 2021, it will likely not be at least until late 2022 before we see population levels return to their pre-pandemic levels,” said Knight Frank in a report released on Tuesday. 

“In Dubai, this lower level of demand will be further compounded by a continuing influx of supply, which in turn is likely to continue to put pressure on property values,” it added. 

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Dubai is expected to see the delivery of more than 41,000 new apartments and villas this year, higher than the completed units in 2020, according to Asteco. In Abu Dhabi, new supply could reach more than 7,000 units, based on the estimates shared by real-estate consultancy CORE. 

HIGH DEMAND 

Developers, real-estate brokers, and government data have recently pointed to a strengthening of demand for residential properties, with some newly launched units selling out in a matter of hours.  

Dubai’s biggest listed developer, Emaar Properties, reported that it generated more than 6 billion dirhams ($1.6 billion) in sales during the first three months of 2021, while in Abu Dhabi, Aldar Properties said the freehold villas and townhouses in its new project in Yas Island were sold out in 48 hours. 

As of the first quarter of 2021, the ValuStrat Price Index showed an overall 10.9 percent annual fall in capital values. Quarterly figures, however, posted an improvement of 0.8 percent. 

According to Haider Tuaima, the head of real-estate research at ValuStrat, capital values in all established freehold villa locations have improved since the last quarter, ranging from 1.8 percent to 5.4 percent. However, the trend is not across the board. “Only half of apartment locations improved in value. Some areas saw declines of up to 2.8 percent,” he told Zawya. 

In terms of sales, the first quarter of 2021 saw the highest recorded number of home sales transactions since 2010, with sales of more than 6,000 ready homes worth a total of 13.5 billion dirhams and 3,600 off-plan properties worth a total of 5 billion dirhams. 

INCREASE IN PRICES 

With the strong demand for certain types of properties, particularly ready-to-occupy units, prices in some communities have gone up. According to real-estate brokerage firm Allsopp & Allsopp, average sales prices have increased by 31 percent from 2.2 million dirhams in 2020 to 2.9 million dirhams in 2021. 

When asked what could be behind the trend, Tuaima noted that some buyers are competing for sought-after properties with offers higher than the original asking prices. 

Overall, current property values are still lower than they were prior to the coronavirus pandemic. 

“In the UAE, despite various fiscal initiatives enacted on an emirate level and a wide-ranging federal monetary stimulus package, property values in most parts have seen material declines,” said Taimur Khan, the head of research at Knight Frank Middle East. 

“This not the case in all segments. The pandemic has, in certain real-estate asset classes, accelerated pre-pandemic shifts in demand, for example, from physical retail to e-commerce, which in turn has helped underpin values in the industrial sector.”

Among those that have seen the highest impact is the UAE’s hospitality sector, which saw values decline significantly. Values in industrial properties appear to have bottomed out, and in 2021, they are likely to remain stable on average. 

Within the retail segment, values in Abu Dhabi are expected to remain stable this year compared to last year. However, in Dubai, values could continue to decline this year because of significant levels of upcoming supply, according to Knight Frank. 

(Reporting by Cleofe Maceda; editing by Seban Scaria)

(cleofe.maceda@refinitiv.com)

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© ZAWYA 2021

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