COVID-19 impact: Fewer Dubai flats, villas coming to market in 2020

Only 32,000 units to be delivered this year, not 49,000, as initially scheduled: CORE

Image used for illustrative purpose. Newly constructed villas are seen from the air, in Dubai, United Arab Emirates.

Image used for illustrative purpose. Newly constructed villas are seen from the air, in Dubai, United Arab Emirates.

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Despite growing interest in ownership or investment in homes in Dubai, few new villas and flats are becoming available, as the coronavirus pandemic has markedly stalled the city’s construction activity, a new report says.

The volume of new residential supply in the emirate is forecast to reach 32,000 units by the end of the year, about 34 percent lower than the initial conservative estimate of 49,000, real-estate advisory firm CORE said.

Property supply outstripping demand used to be one of the biggest challenges faced by the UAE’s real-estate market. Prior to the pandemic, builders and developers raced to launch and deliver new projects, leading to a number of empty units.

In its latest report released this week, CORE highlighted the impact of the outbreak on Dubai’s property sector, including the pressure faced by builders. It indicated that the reported shutdown of Arabtec, one of Dubai’s biggest companies, will likely lead to further pressure in the coming months.

“We have seen the impact of COVID-19 cause a significant slowdown in handover volumes. Moreover, with the liquidation of Arabtec, we foresee added pressure on the UAE’s construction sector, with banks further tightening project-related financing as liquidity becomes one of the foremost challenges for contractors,” CORE noted.

According to CORE’s analysis, Dubai saw nearly 21,500 new residential units introduced to the market from January to September this year, bringing the total residential stock to 571,500 units. An additional 10,500 units are scheduled to be completed in the last quarter of the year, raising the total deliveries in 2020 to 32,000.

Pent-up demand

Sales activity has recently picked up in Dubai following the lifting of the coronavirus lockdown, with first-time buyers flocking to the market, lured by low mortgage interest rates and sales prices. A lot of these transactions, however, have been concentrated in the secondary market.

During the third quarter of the year, secondary market transaction volumes increased by 6.5 percent compared to the first quarter of the year. Transaction volumes from July to September were also up by 10 percent compared to the same period last year.

However, CORE noted that sales prices remain at “cyclical low” levels, with almost all areas showing double-digit year-on-year declines. Capital values are also nearing their 2014 peaks.

“Although this rise in transaction activity may be perceived positively, particularly in the residential market, it is most likely a release of pent-up demand created over Q2 2020,” said Prathyusha Gurrapu, head of research and advisory at CORE.

“It would be interesting to see if these activity levels are sustained over the near to mid-term as positive demand drivers such as lower interest rates, increase in loan-to-value ratios, retirement visas and fractional ownership of title deeds are implemented,” Gurrapu added.

Rental market

As for the rental market, CORE noted that there has been” considerable movement” among tenants who are looking to boost their savings, particularly in the midst of continued income pressures due to the pandemic.

“Tenants can now find newer build and occasionally bigger units at similar or lower rents than what they were previously paying. Some tenants, on the other hand, have downgraded or moved to outward locations which have seen new stock deliveries,” CORE added.

However, CORE said that most landlords are also now willing to negotiate lower rents and flexible lease terms upon renewals to retain tenants.

“This has led [other] tenants to remain in their current premises as they have been able to achieve rental savings upon negotiations while avoiding uncertainty and additional moving costs,” it said.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

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© ZAWYA 2020

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