Analysis

Confidence returning to Dubai’s real estate market, says Chestertons

Q4 apartment and villa sales prices down 2% and 3% respectively; rental rates Q-on-Q point towards stabilising prices

Dubai’s real estate market could be seeing the first signs of growing market confidence. This is a result of a notable slowdown in apartment sales price declines and the stabilisation of rental rates, according to the latest ChestertonsObserver: Dubai Market Report Q4 2019.

Transaction values for the year also underscored the positivity in the market with completed units witnessing a 60% increase compared to 2018, and off-plan units recording a 99% increase during the same period. The volume of transactions was similarly positive in 2019 for completed and off-plan units, with a 39% and 68% increase compared to 2018.

While green shoots are visible, supply is still the single biggest contributor to declining residential prices in the Emirate, 45,000 completed units were delivered in 2019 – the highest number of units in the last five years – with a further 90,000 units scheduled by developers to complete in 2020. While it is likely that a significant minority of planned projects will overrun their scheduled completion, the volume of units, by any measure, is clearly out of step with current market-wide sales performance.

Chris Hobden, Head of Strategic Consultancy, Chestertons MENA, said: “The Dubai residential market in Q4 2019 is alluding to a more positive outlook for 2020 thanks to the slowdown of sales price declines and the levelling of rental rates.

“This does, however, have to be tempered by the volume of new units scheduled for delivery in 2020, which makes the short-term recovery of prices in the Emirate unlikely.”

In the sales market, average apartment sales prices were down 2% in Q4, a notable slowdown from the previous quarter, while villas witnessed a 3% decline during the same period. Business Bay, Dubailand, Dubai Marina, and The Greens were resilient with prices remaining unchanged from the previous quarter at AED1,000 per sqft, AED700 per sqft, AED1,030 per sqft and AED847 per sqft respectively.

Jumeirah Village Circle declined by 9%, denoting the largest decrease in Q4 in the apartment market, from AED685 per sqft to AED623 per sqft. Motor City witnessed a price drop of 7%, with apartments available for AED585 per sqft. More positively, The Views saw a price increase of 4%, returning to levels witnessed in Q2.

In the villa sales market, average prices were down 3% in Q4. Jumeirah Park witnessed the highest decline during Q4, down 8% to AED740 per sqft. The Lakes observed modest declines of 2%, and The Meadows, 3% with prices dropping to AED993 and AED822 respectively.

The most resilient villa location was Arabian Ranches, which witnessed a price increase from AED793 per sqft to AED808 per sqft in the same period.

“Oversupply contributed to declining capital values in Dubai and has resulted in further price declines in Q4,” added Hobden.

From a rental perspective, no movement was witnessed in Q4, potentially signaling the long-term rental market has levelled out, with the sentiment further endorsed by the new draft law which would see rental rates fixed for three years upon the signing of a contract.

In the apartment rental market, Downtown Dubai was the only area to record an increase in rates, largely down to new high-end units in the community, resulting in an increase of 8%, with a typical two-bedroom available for AED140,000 per annum. DIFC, Discovery Gardens, Dubai Silicon Oasis, Dubailand, International City, and The Views remained unchanged Q-on-Q.

Several communities witnessed an average 2% drop-in rates, including Business Bay, Dubai Marina, and Motor City, whereas more pronounced declines of 3% were seen in The Greens and Dubai Sports City. A one-bedroom in The Greens was available for AED60,000 in Q4 whilst the same sized unit in Dubai Sports City was available or AED45,000.

“To ensure high occupancy in 2020, landlords will have to be realistic in the face of tough market conditions. The incentives previously offered to tenants, such as rent-free periods, multiple cheques and short-term leases will continue, with an increase in tenant demand for monthly direct debit payments also likely” added Hobden.

In the villa rental market, Arabian Ranches, The Meadows, The Lakes, Al Furjan, JVT, Jumeirah Islands, Jumeriah Golf Estates and Palm Jumeirah saw no rate change from the previous quarter, further underscoring that rates in these locations may have bottomed out, particularly when considering Jumeirah Islands, The Meadows, and Arabian Ranches, all witnessed declines of 11% in Q2.

The greatest villa rental decreases were felt in The Springs with an average three-bedroom available for AED140,000, denoting a softening of 3%, and Victory Heights, where the same size villa was available for AED125,000, a decrease of 4%.

“Despite the challenging environment for landlords, due to falling rents, Dubai is still seen as providing decent yields in the long-term rental market, with the 10 most popular communities offering returns of between 6% and 9.5%. To put this in context, prime rental yields in major global cities such as London or Hong Kong, are currently below 5%,” concluded Hobden.

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