Why you can expect lower rents in Dubai this year

Dubai - Real estate sector still feeling fallout from low oil prices, currency fluctuations

For both property buyers and tenants in Dubai, 2017 will be another good year as residential prices and rents are expected to fall by another five per cent to 10 per cent as the supply of around 16,500 new units is expected to put further downward pressure on prices.
S&P Global Ratings said for 2017, the UAE real estate sector faces another difficult year after a correction in 2016. It ruled out any sign of market improvement for the UAE real estate sector, despite housing affordability improving from the current price environment.
"With the fallout from low oil prices and continued currency woes, it is no surprise that 2016 was a tough year for the real estate market. Dubai's residential prices dropped by eight per cent to 11 per cent on average and rent fell by six per cent according to Redin.com, with most areas of the city affected. The strength of the dollar is also making the UAE increasingly expensive for tourists and low oil prices in 2016 have diminished purchasing power and weakened investor sentiment," the global ratings agency said in a report. "Another tough year for UAE real estate market amid currency woes."
Another reason for the downbeat outlook is British pound's relative weakness against the UAE currency, making the property market less attractive for UK nationals, who constitute the fourth-largest investor segment in residential real estate in the first half of 2016. "The pound declined by 17 per cent versus the dollar in the past 12 months due to Brexit fears. The evolution of the pound remains a concern for the UAE as the UK is traditionally among the top three source markets for visitors to Dubai, and UK nationals were the fourth largest," it said.
S&P analysts did not foresee major negative movements in its real estate sector ratings in the next 12-18 months as they think developers will be able to absorb the fall in house prices due to low debt burdens and strong balance sheets. Rated real estate companies are also hedged somewhat due to their high asset quality and long-lease structures.
The ratings agency said residential prices and rents are set to decline further due to continued currency woes, while the office property segment is expected to stabilize as a result of subdued corporate activity.
"The decline in retail sales is likely to continue due to the strengthening dollar and hotels will struggle with excessive supply even though tourism numbers are resilient. However, we expect our rated developers to absorb the anticipated fall in house prices due to their strong margins, low debt burdens, and strong balance sheets."
S&P said the UAE is becoming increasingly expensive for tourists and shoppers as the dollar continues to appreciate. Along with the pound, the euro, Chinese yuan renminbi and Indian rupee have declined by three per cent, seven per cent and two per cent, respectively.
"If currency pressures persist, Dubai could potentially lose its coveted status as an international shopper's paradise and have to concentrate its customer base on GCC travellers. The profile of visitors is shifting to a value-conscious tourist who might spend less per trip than a tourist the year before. This thwarts growth in the retail, restaurant, hospitality, and entertainment sectors. Therefore, international retailers will need to adjust prices in the market to keep shoppers spending," the report said.
In 2016, approximately 15,000 housing units were delivered in Dubai, according to Jones Lang LaSalle's 2016 report, adding three per cent to overall supply. In 2017, the two largest rated developers (Emaar Properties and Damac Real Estate Development), together representing about 35 per cent to 40 per cent of total project launches, are expected to deliver between 5,000-5,500 units in Dubai.
Assuming the remaining competitors deliver a slightly lower volume, the market may absorb a residential supply of at least 10,000-11,000 units in 2017, which is more or less in line with the long-term average. "We therefore do not expect this steady supply to act as a catalyst to currency effects, but could potentially add further downward pressure on residential prices. While we think a decline in sale prices is likely to affect the older stock more than the newly-built units, this is subject to localisation. In Abu Dhabi, we expect weak investor sentiment to weigh on residential prices while rents will decline," said S&P analysts.
- issacjohn@khaleejtimes.com