Dubai housing headed for oversupply?

dubai - 570,000 units of new supply could enter the market by 2020, says JLL

With Dubai developers on a project launch spree in 2017, several thousands of units are expected to be released to the market by 2020. This could result in a situation where supply outpaces demand.

According to a JLL report on Monday, 570,000 units of new supply could enter the market by 2020, representing an average annual increase of eight per cent. Citing an Oxford Economics study, JLL says Dubai's population is expected to grow an average of three per cent per annum. This suggests that market absorption rates will be less than the levels of new supply and thus a large number of residential units may be left vacant.

However, going by the past few years, it is unlikely that all these projects will complete on time. JLL believes only 40 per cent of the total proposed supply of residential units in Dubai has actually materialised over the past five years.

The total residential stock in Dubai is estimated at 491,000 units at the end of 2017. Key projects which were completed include Duja Tower in Trade Centre (679 units) and The Polo Residence in Meydan (598 units). 2018 will likely see up to 17,000 apartments entering the market, estimates the consultancy.

Although 2017 witnessed a slew of project launches in Dubai, their number was significantly below peak levels seen in 2006/2007 and the volume and value of sales were also below levels recorded during 2013/2014.

Both sales prices and rents declined over the year, but the rate of decline slowed over Q4. As the market absorbs additional units, it is expected that prices will continue adjusting (downwards).

JLL reckons that one of the major drivers of the more subdued market has been the slowdown in economic growth. The start of 2018 could see a reduction in activity in the real estate market due to uncertainties around the value-added tax (VAT).

"The UAE real estate industry is entering into a transitional phase, with VAT now in effect and key stakeholders seeking to decipher its immediate and longer term impact. Although VAT does not apply to residential rents and sales of new residential property, other real estate sectors could be negatively impacted by increased costs and cash flow challenges," said Craig Plumb, head of research at JLL Mena.

The majority of residential sales were concentrated in the off-plan sector, where developers offer attractive prices and payment plans. A total of 25,600 off-plan properties were purchased in Dubai in 2017, with 2017 set to record the highest level of off-plan sales in Dubai since 2008, explains JLL.

Abu Dhabi
There were 3,000 residential units delivered in Abu Dhabi during 2017, with 88 per cent of completions being apartments, bringing the total stock to approximately 251,000 units.

Future supply is expected to shift to the New Islands (Saadiyat Island, Reem Island, Yas Island and Raha Beach), comprising more than 60 per cent of projects currently under construction. By 2020, 12 per cent of the total residential supply in Abu Dhabi will be on New Islands, compared to eight per cent in 2017. This trend is predominantly driven by the high number of apartment completions on both Reem Island and Al Raha Beach.

Limited future supply is expected to enter the main Abu Dhabi Island representing approximately 57 per cent of the total residential supply in Abu Dhabi in 2020 compared to 62 per cent in 2017.

Both apartment and villa sales prices saw slight declines over the last quarter of 2017, while rents remained flat for both segments. Investor sentiment has been negatively impacted since 2014 when oil prices started declining.

Sharjah
Congestion in the older residential locations in the western parts of the emirate has led a significant shift in population to more eastern locations.
A big change in the Sharjah residential market results from changes to the property ownership laws introduced in 2014 to allow non-Arab expatriates to purchase property. This has resulted in the development of a number of master-planned communities, including Al Zahia, Tilal City, Nasma Residences, Al Mamsha, Aljada and Sharjah Waterfront City.

The vast majority of the residential units in Sharjah are apartments (89 per cent), with only 11 per cent of the current stock comprising villas.
There have been announcements to construct around 30,000 additional residential units across Sharjah in coming years.

The average price of apartments sold in Sharjah has remained largely unchanged during 2017. Rents in Sharjah have continued to decline (by between six per cent and 10 per cent) over the year. This has been driven by softening of rents in Dubai, which has reduced the movement of tenants from Dubai to Sharjah. Sharjah continues to be an affordable residential destination, with average apartment rents 30 to 40 per cent lower than comparable mid-market products in Dubai.

- deepthi@khaleejtimes.com