Rents in Dubai to drop on supply of units

Rents in Dubai to drop on supply of units

Induction of 14,000 home units in Dubai this year may also slowdown sales



By Isaac John (associate Business Editor)

Published: Mon 23 Feb 2015, 11:28 PM

Last updated: Thu 25 Jun 2015, 11:57 PM

Rents in Dubai to soften on supply of units

Dubai — The supply of an estimated 14,000 new residential units in 2015 is expected to soften Dubai’s rents that had soared by up to 65 per cent since 2011, real estate company Asteco said on Sunday.

Dubai residential property market also faces the prospects of softening of sales activity due to the new supply following declining sales and rental returns in the second half of 2014, the company said in a report.

“A further 12,000 apartments will be added to the city’s existing inventory in 2015 as well as over 2,000 villas. This is good news for tenants across the emirate, and a more tempered rental environment is especially welcome when you consider that since 2011 apartment rents have increased by 65 per cent, and villas by 55 per cent,” said John Stevens, managing director, Asteco.

In 2014, rental rates rose across all three properties types with apartments showing average year-on-year growth of seven per cent, villas four per cent and offices 12 per cent. “The impact of tenants choosing to remain in existing accommodation rather than relocate resulted in a slowdown in activity,” said the report ‘Dubai Property Review 2014 Highlights & 2015 Outlook.’ 

The citywide annual average for a two-bedroom apartment in Dubai was Dh122,000 at the end of the year, with an average six per cent year-on-year rental rate increase recorded in fourth quarter 2014.

Asteco predicted that Villa rental rates would remain relatively stable in the most desirable areas, with marginal declines in less desirable areas. “Looking beyond this year, a more significant drop in rental rates could be on the cards from 2016 onwards as the large number of projects announced in 2013/14 (an estimated 12,000 to 14,000 villa units) are completed,” said Stevens.

According to the report, apartment rents surged by 65 per cent since 2011 but are still 25 per cent lower than in 2008. Rental rates are seven per cent higher, on average compared to last year. Villa rates increased by approximately 55 per cent since their lowest in 2011, with fourth quarter 2014 rates still 20 per cent lower than in the same 2008 quarter but up four per cent since last year.

According to Asteco,  2014 was a year of stabilisation with sales price increases of four per cent, one per cent and nine per cent respectively for apartments, villas and offices. Dubai’s residential sales market recorded moderate growth in the first half of 2014, with significant slowdown in market activity and sales transactions in the second half. Villa sales prices were stable in the final quarter of 2014 compared with the same 2013 period, although they fluctuated over the year, with the Meadows, Springs and Arabian Ranches communities accounting for 50 per cent of all villa sales.  The Palm Jumeirah was the only development to experience an increase over 2008 prices, up four per cent, said the report.

“We anticipate that the overall sales prices of units in sought-after communities are likely to see relative stability, while secondary communities, with limited facilities and amenities will be faced with declining values,” said Stevens.

Reflecting reduced risk appetite, the market saw a 25 per cent reduction in villa and apartment transactions in 2014 against 2013 figures in the wake of new lending regulations and fees making the purchase process more expensive.

“Indeed, transactions levels fell by 40 per cent year-on-year in fourth quarter 2014 alone. Off plan sales also slowed with the added burden of newly completed products offering buyers an increasing choice of investment opportunities,” said the report.

The report noted that with current sales rates stabilising and rents witnessing potential increases in the medium term, office yields are expected to improve in 2015.

“The office market has lagged behind the residential market by a full 12 months, with rental rates lows in 2012 and slow growth from then, at 35 per cent on average from 2012 through to 2014 and sales prices increasing by 13 per cent over the last year only,” said Stevens.

— issacjohn@khaleejtimes.com


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