Dubai realty rents cool in Q2

Dubai - Softening shows payment plans becoming important in investment decisions

On the back of a steady supply growth in the first half 2015, Dubai's residential and hospitality markets began to soften after three years of sustained growth, global property consulting firm CBRE said.
While the rental market continues to outperform the transactional market in 2015, residential leasing rates are beginning to witness marginal declines. "This reflects the relative strength of the Dubai economy and the sustained levels of occupier demand, against the emergence of weaker sentiment in the sales market, particularly for completed and ready-to-occupy properties," CBRE said.
Mat Green, head of research and consultancy for the UAE at CBRE Middle East, said average residential sales prices had fallen by around two per cent quarter-on-quarter in the second quarter, mirroring the decline recorded in the first. "This reflects the current weakening of demand, as well as global economic conditions that have negatively impacted investor sentiment."
According to the report, as the market has started to cool over the past year, payment plans have become an increasingly important driver of the investment decision for off-plan properties, sometimes even outweighing the price per square foot.
"Flexible, back-weighted payment plans are allowing investors and end-users to secure properties with a minimal initial down payment and low instalments, with a large lump sum paid upon or after completion."
"Similar to the sales market, the rental market has also seen marginal deflation in rates during second quarter, posting the first quarterly drop since 2011. Rentals within the villa market saw the steepest decline, falling by an average of three per cent, as compared to a two per cent dip in apartment rentals. Higher-end areas, including Dubai Marina, Jumeirah Beach Residence, Palm Jumeirah, Greens and Jumeirah Lake Towers, have actually suffered some of the heaviest declines, with rental rates falling up to four per cent," said Green.
Hotels in Dubai continue to be impacted by the strengthening dollar and depreciation of the euro and Russian rouble, which has reduced Dubai's affordability for many of its primary source markets, stated the report. In May, revenue per available room fell 8.3 per cent to Dh764 year-to-date compared to the same period of the previous year.
According to CBRE, the office market remained broadly stable and residential rents are starting to slide, reflecting Dubai's general shift in sentiment. Average central business district office rentals remained unchanged at Dh1,884 per square metre per annum, with flat rates now recorded for the fifth consecutive quarter, reflecting the stability of the marketplace.
Secondary office locations have witnessed a marginal increase in performance during the quarter.
The total office stock during the second quarter stood at around 8.2 million square metres. Approximately 0.3 million square metres is still scheduled to be delivered by the end of the year-end, depending on the pace of construction.
"The delivery of substantial supply across the residential and hospitality markets during 2015 is likely to place additional pressure on prices and average rates, which have witnessed high growth over the past three years. It is also expected that the appreciation of the real exchange rate will compress performance across all asset classes and reduce investor sentiment in the short term," said Green.
Declining apartment and villa prices in Dubai will stabilise during 2016 and return to growth later in the year or in 2017, according to Core Savills.
A marketplace intelligence survey by London Business School said a drastic property market correction in Dubai is unlikely.
Standard & Poor's Ratings Services believes that the impending correction in the wake of additional supply and lesser demand would result in a moderate 10 per cent to 20 per cent correction in Dubai's residential real estate prices, but would be "nothing on the order that led to the crisis in 2009".
Property experts at Cluttons argue that new real estate regulations in the UAE, which were aimed at curbing speculative activity, have helped ward off a possible overheating of Dubai's property market.
- issacjohn@khaleejtimes.com

• Dubai