• Apartment and villa rental rates decline on average by 2% q-o-q, Palm Jumeirah down by 6%
• Improved yield potential sees buyers shift to affordable project investment
According to the latest UAE Property Review - Q2 2015 report for Dubai from leading real estate consultancy Asteco, a new era for Dubai's residential market is on the horizon, as rental rates for apartments and villas across the city declined by an average of 2% in 2015 - Q2 versus Q1 (and 5% year-on-year for villas), with marked declines at the higher priced end of the market.
Homes for sale also recorded an average fall of 2%, with some areas performing significantly worse than others dropping 11% year-on-year for villas with apartments decreasing by 7%.
"The softening in Dubai's residential rental market appeared earlier than we originally anticipated, offering tenants in the emirate an opportunity to recoup somewhat after several tough years of high rents, " said John Stevens, Managing Director, Asteco.
"The decrease was felt throughout the market and areas with a significant amount of completed new supply were the most affected. Additionally, some buyers of nearly completed buildings were keen to sell at negative premiums due to the imminent completion of the building, which required final payment," he added.
The highest quarter-on-quarter apartment rental declines were recorded on Sheikh Zayed Road (7%), Palm Jumeirah (6%) and Jumeirah Beach Residences (7%). Conversely, IMPZ, Dubai Sports City and Dubai Silicon Oasis recorded higher rentals compared with 2014, of between 6-13%, due to the completion of community infrastructure and increased occupancy levels making them popular mid-market residential areas.
In the villa segment, the handover of projects like Casa Villas at Arabian Ranches brought rental rates for the area down by 7% quarter-on-quarter, and 15% year-on-year. Over at the Mudon community, the ongoing handover of its three and four-bedroom townhouses, with competitive pricing starting at AED 175,000 per annum, put pressure on landlords of neighbouring developments to secure and retain existing tenants.
"We even saw a 6% decline for Palm Jumeirah, with the handover of the lower specification Palma Residences' townhouses impacting rental rates due to their lower price band. So we are seeing a similar tenant-friendly trend in the broader villa market, with more flexible installment plans for example, and this is set to continue as areas like Dubailand continue to deliver new supply," noted Stevens.
Apartment sales in Q2 were marked by a shift towards more affordable properties with locations such as IMPZ, Dubai Silicon Oasis, International City, and the recently handed over Queue Point and Sky Courts developments in Dubailand, witnessing sustained demand as yields for studio and one-bedroom apartments in particular, remained attractive.
Affordability was also a priority for villa investors with Jumeirah Village recording a high number of transactions for some of the townhouse properties by Nakheel and in Indigo Ville, priced at AED 700,000 up to AED 1.2 million. In comparison, larger properties, including five and six-bedroom villas, saw minimal transactions completing in communities such as The Villa or Dubai Sports City, despite strong rental demand.
"However, despite strong transaction levels, the increasingly competitive market environment, with a lot of new supply, means that the 2% quarter-on-quarter decline is not going to be a temporary blip, with more pressure on owners to review their selling price, still to come," said Stevens.
Asteco also noted an emerging trend by a limited number of purchasers, who were advertising off-plan properties, not yet in the construction phase, at negative premiums, in an attempt to relinquish financial obligations.
This quarter, it was the office sector that saw the most gains, with an average 2% growth in rental rates, dependent on area, although average sales prices declined by 1%.
Leasing-wise, DIFC witnessed an 11% quarter-on-quarter growth with existing stock almost fully occupied and companies eyeing expansion forced to seek space in nearby buildings, which has benefited development such as Central Park Towers, which attained rates of AED 180 and AED 250 per square foot for shell and core and fitted space respectively. Index Tower's leasing rates also increased up to AED 350 per square foot, as full floors were subdivided to offer small, fitted space to companies looking to set up at the DIFC free zone.
However, previous star performer Business Bay saw a 10% quarter-on-quarter decline in leasing prices, affected by the handover of a substantial amount of office space, with Asteco predicting more pain to follow with a further 1.3 million square feet of new supply to be delivered in the next few years.
"The office sales market has essentially moved away from investment buyers to one where end-users are the most common buyers for completed buildings. In the future we expect sales prices to come under pressure in areas where significant supply is due to be handed over," remarked Stevens.
For more details, please visit www.asteco.com
A copy of the full Asteco Dubai Property Review - Q2 2015 Report can be downloaded from -
http://www.asteco.com/valuation-advisory/report-library/?city=dubai
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About Asteco
Asteco, a major regional and international real estate services firm and the largest property services company in the United Arab Emirates, was founded in Dubai in 1985. Asteco offers independent market analysis, design development consultancy and valuation services, sales and leasing services, as well as asset and property management services.
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© Press Release 2015
