Dubai Apartment Prices may Fall by 20pc

Filed on February 11, 2010

DUBAI Sale prices and rents for villas, apartments and offices in Dubai will continue to decline through the first quarter of 2010 because of supply glut, with apartment prices likely to take the biggest hit and falling as much as 20 per cent in the next 18 months, property consultants Landmark Advisory said on Tuesday.

Landmark said that Abu Dhabi’s residential property prices, in the first quarter of the year, are likely to remain stable on average, with some upticks in select localities. But rents are likely to maintain a downtrend.

High-end units in Abu Dhabi saw their rents fall up to 15 per cent, but it was low-end units that fared the worst, Landmark said in its Q1 Real Estate Report.

The report said that after increasing in the third quarter last year, villa prices in Dubai stagnated with a marginal increase of 0.2 per cent in the fourth quarter. A price bifurcation is emerging with coastal villa communities (along Sheikh Zayed Road) stabilising, while inland villa communities experience further declines, it said.

Apartment prices fell 4.3 per cent in Q4, which was similar to the 3 per cent decline in Q3. The report said that location and quality are driving apartment prices; while average prices decreased, select communities, including Palm Jumeirah and Downtown Burj Dubai, experienced slight increases. Still the overall downtrend in apartment prices will remain intact due to an excess of supply.

“The supply-demand dynamics will have a negative impact on average prices of inland villa communities and apartments. We predict apartments will decline as much as 20 per cent over the next 18 months.”

Residential rents in Dubai has also regressed in the fourth quarter; “Average villa rents declined 2.2 per cent while average apartment rents declined 3 per cent. In select new residential areas, apartment rents have increased which is primarily due to all available residential units having been handed over recently. This type of marginal rent increase usually follows apartment deliveries, propelled by gradual occupancy gains after handover.”

The report said that average rents in Dubai are likely to decline as more residential supply is delivered at a time of weak demand fundamentals.

“Landmark Advisory revised 2009 population assessment with the real impact on single household residential demand estimated at -5.4 per cent. Going forward, a CAGR (compound annual growth rate) of 10-10.5 per cent would be required to absorb all new residential supply through 2012.”

In the office market, Landmark said, sale and leasing transactions remained low in the fourth quarter. Average sale prices declined 5.1 per cent, while average office rents declined 8.4 per cent. “Sale prices and rents will continue to decline as 48 million square feet of office space enters the market over a 4 year period. Dubai’s total population would need to grow by a CAGR of 22-26 per cent over the space of 4 years to absorb this supply.” The report said that rents in Abu Dhabi are likely to keep declining throughout the first quarter as more supply is delivered and landlords become increasingly flexible. “Additionally, Dubai will remain an attractive substitute market with infrastructure improvements facilitating the commute.”

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