Dubai rents could drop further as real estate market close to bottoming out

Property Monitor expects over 50,000 units of residential supply to enter the market

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

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

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Property prices and rents in Dubai will drop further in Q1 2020 according to the 2019 UAE Property Market report released by Property Monitor.

The real estate market has not bottomed out yet but there are signs that we are getting closer to that point, Zhann Jochinke, Chief Operating Officer at Property Monitor told Zawya.

“Many buyers who were potentially on the fence regarding property purchase decisions have decided to enter the market, as reflected by the record transaction figures in 2019,” Jochinke said.

Property Monitor is a real estate data and insights platform launched in 2014 by consultancy and chartered surveying firm Cavendish Maxwell.

The number of property transactions in Dubai increased 20 percent to hit 11-year high of 41,988 in 2019 compared to 34,961 transactions in 2018, according to Property Finder.

“Whilst this is a strong indicator of hitting a floor in terms of prices, other indicators such as high vacancy rates and the expected upcoming supply are yet to show signs that support stabilization,” Jochinke said.

According to the Cavendish Maxwell report, more than 50,000 residential units will enter enter the market in 2020 as developers hand over projects delayed in 2019, which could apply further pressure on prices.

Apartment prices in Dubai declined by 15 percent from Q4 2018 to Q4 2019 and villa/townhouse prices were 18 percent lower, the report shows.

Prices and rents may fall further according to Jochinke, but the decline may not be as steep provided the status quo is maintained, developers hold back on new launches and the market is generally allowed to run its course.

“All developers have their eyes open to the fact that they can’t pump too much more into the market without growth being there and demand being there,” Jochinke told Zawya.

According to Cavendish Maxwell, key government policy changes like the formation of the Higher Real Estate Planning Committee that aims to manage the balance between supply and demand, the Abu Dhabi freehold ownership law, the Golden Card permanent residency and extended UAE visas, interest rate cuts are likely to have a significant positive impact on the economy for years to come.

Dubai is likely to see additional hotel supply this year as it gears up to accommodate the expected 25 million visitors during the six-month Expo. Abu Dhabi is also likely to witness a spill-over of Expo visitors, providing a boost to occupancy levels, the report adds.

On Expo, Jochinke said: “The biggest thing that we are going to benefit from is it’s been a massive infrastructure project that is going to pave the way for the next 10-15 years of future development.”

2019 key insights

The Cavendish Maxwell report revealed that average apartment prices in Dubai declined by 15 percent from Q4 2018 to Q4 2019 and villa/townhouse prices were 18 percent lower. Off-plan transfers continued to dominate in Q4 2019, accounting for more than 60 percent of total transfers.

Rental declines for apartments in Dubai averaged 13.4 percent, whilst villas/ townhouses registered a 9 percent drop over the 12-month period.

In Abu Dhabi, the residential market performed slightly better with average apartment sales prices declining in major investment zones by 13 percent and villas by an even lower 11 percent during the period.

Rents in Abu Dhabi continued to fall in the fourth quarter of 2019, for both apartments and villas/townhouses. The average annual decline was 12 percent for the 12-month period from Q4 2018 to Q4 2019, with apartments facing steeper declines compared to villas/townhouses.

Dubai office rental rates in Q4 extended declines from the previous quarter falling around 5 UAE dirhams per sqft while retail rental rates remained like the previous quarters. In Abu Dhabi, office rental rates also dropped in the fourth quarter.

Market conditions in the Northern Emirates remained largely like the previous quarters, with few areas displaying signs of stabilization, the report said.

(Reporting by Gerard Aoun; editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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