Dubai residential values drop
Dubai's rental market has remained more resilient.
Dubai - Challenges being faced by apartment and villa sales markets, says Cluttons
Dubai's residential sales and rental value are set for further decline in 2016 as the local economy continues to adjust to softening global conditions, according to leading international real estate consultancy Cluttons.
After falling by an average of 3.1 per cent during 2015, residential values in Dubai fell by an additional 2.2 per cent during the first quarter of 2016.
"This marks the strongest quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline, highlighting the challenges faced by both the apartment and villa sales markets," Cluttons' Dubai Spring 2016 Residential Property Market Outlook said.
"We've been carefully monitoring the declining residential values over the past two years, but the persistent headwinds to local and global economic growth are continuing to erode overall demand and capital values are still softening, albeit at a slightly quicker rate,"said Faisal Durrani, head of research at Cluttons.
"In the villa market for example, values at the end of the first quarter stood at an average of close to Dh1,375 per square foot, which represents a near three per cent decline since the end of 2015."
The latest change means villa prices are nearly seven per cent down on this time last year. With the exception of Hattan Villas at The Lakes, every villa submarket that we track registered price falls in the first quarter. Looking back at 2015, the market registered a 5.6 per cent fall in prices in line with our expectation of a drop between five per cent and seven per cent, which Cluttons predicted back in 2014.
"During 2016, it is our view that a further decline of around five per cent is likely on average, with some villa submarkets likely to see price falls of up to seven per cent," said Durrani.
Apartment values demonstrated greater resilience during the first quarter, with marginal declines across the board. Aside from mid-range apartments at Business Bay, which registered a 12.8 per cent decline in average prices to Dh1,068 per square foot, several submarkets saw values stagnate in the 12 months to the end of first quarter, including more affordable locations such as International City, Jumeirah Lake Towers, Discovery Gardens and the International Media Production Free Zone.
"Apartment values on average declined by a marginal 0.8 per cent over the last two years, reflecting greater resilience in this segment of the residential market thus far. That said, there has been a reduction in the number of transactions registered during first quarter 2016, suggesting there may be a lag before apartment values start to slip. Reidin data shows that apartment transactions fell from 2,787 in fourth quarter 2015 to 2,349 in first quarter 2016. With that in mind, we are expecting to see apartment values decline by three per cent to four per cent this year as transactional activity slows further," said Durrani.
The data shows that, overall, the supply pipeline's expansion appears to have slowed, with no major shift in forecasts expected for the next three years. During 2016, Cluttons expects 7,058 units to be completed, followed by a further 10,299 deliveries in 2017. The number of handovers is expected to rise to 16,026 in 2018, before dipping back to 9,786 in 2019.
"The number of villa and apartment handovers between now and 2018 is still quite evenly split. The overall stabilisation in the projected rate of handovers bodes well for the market as it hints at the potential for strong value rises once the planned residential handovers are absorbed by the market in two to three years' time," said Richard Paul, head of residential valuations at Cluttons UAE.
Cluttons said the strength of GCC investment into Dubai real estate last year also demonstrates the continued desirability of the emirate as an investment location and arguably the most sought after investment destination in the region.
"With the market still evidently working its way through a challenging period, with global economic conditions and affordability challenges, which are in part linked to the Federal Mortgage Caps, an immediate recovery in values appears unlikely, particularly as uncertainty around commodity prices, which have a direct impact on liquidity levels in the UAE's banking system, remains in flux," said Paul.
Dubai's rental market remains more resilient than the sales market, with less severe declines in rates. During 2015, rents across Dubai's freehold residential areas declined by an average of 1.3 per cent. The first quarter registered a further 2.7 per cent drop in rents, which has dragged the annualised rate of change down to -3.5 per cent.