The UAE's real estate continued to witness strong supply of new residential units as 10,300 new villas and apartments were delivered in Dubai and Abu Dhabi in the first quarter of 2019, according to a report released by Asteco on Monday.
As a result of this new supply and increased in new project launches, rentals and property prices maintained their downward trend in the last quarter.
Surprisingly, the study found that project launches increased in Q1 2019 despite prevailing oversupply concerns.
Prominent launches over the first 3 months of the year included the Expo Golf Villas in Dubai South and Arabian Ranches Phase 3 by Emaar, and Central Park at City Walk and La Rive at Port De La Mer by Meraas.
Similarly, Abu Dhabi added 3,600 new units in Q1 including 2,800 apartments and 800 villas. It is expected that another 6,000 villas and apartments will come online by the end of 2019.
In Dubai, the study noted that apartment and villa rental rates continued their downward trajectory recording average drops of 11 per cent and 9 per cent, respectively compared with the same period last year.
Asteco study found that the number and range of incentives have increased with rent-free periods, now of up to 3 months, being the most popular.
"Others include the absorption of agent fees, lower security deposits and the inclusion of Dewa bills, maintenance or chiller charges," it said.
For Abu Dhabi market, Asteco said that new supply combined with limited demand, coupled with economic challenges and bearish market sentiment continue to contribute to the downward trend in residential rental rates.
Apartment and villa rents declined by two per cent and one per cent, respectively, in Q1 2019, and seven per cent and five per cent over the year.
The highest decrease was recorded for mid- and high-end residential units as tenants seek more affordable opportunities.
Whilst incentives such as multiple cheque payments and rent-free periods have become a norm in the lower- to mid-end market, vacancy levels in many prime quality buildings increased significantly, as the discounts and incentives offered were insufficient to ensure yenant retention in a highly competitive market.
The trend in rental decline continued in the Northern Emirates as spillover effect.
Asteco's data revealed that apartment rental rates in the Northern Emirates recorded average quarterly and annual decreases of three per cent and 11 per cent respectively as a result of economic uncertainties, bearish market sentiment and increasing supply and reduced demand.
In Q1, residential sales price contractions were more pronounced than those for rental rates with average quarterly and annual declines of four per cent and 15 per cent for apartments, and four per cent and 14 per cent for villas.
"Interest in off-plan projects and secondary market properties has remained somewhat buoyant, aided by competitive, more affordable pricing and attractive payment options," Asteco analysts said in the report.
S&P Global Ratings had forecast in February that Dubai residential property prices would fall another 5-10 per cent in 2019 due to a continued gap between supply and demand, before steadying in 2020.
For Abu Dhabi, similar to rental rates, average apartment and villa sales prices softened by around two per cent and one per cent in Q1 2019 and recorded annual declines of eight per cent and four per cent, respectively.
Sales transaction activity remained low in Q1 2019 with demand for off-plan and newly delivered properties outweighing that for completed units available in the secondary market.
Although villa sales price declines were less pronounced than those for apartments, interest in large villas with high price points was particularly limited as Investors continued to focus on the affordable sector, said Asteco.
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