Chestertons delivers upbeat analysis on 2020 real estate prospects in Dubai amid slowing price declines and stabilizing rental rates.
Dubai’s real estate market could be seeing the first signs of growing market confidence, according to new research.
Chestertons said this is a result of a notable slowdown in apartment sales price declines and the stabilization of rental rates
Its Dubai Market Report Q4 2019 said transaction values for the year also underscored the positivity in the market with completed units witnessing a 60 percent increase compared to 2018, and off-plan units recording a 99 percent increase during the same period.
The volume of transactions was similarly positive in 2019 for completed and off-plan units, with a 39 percent and 68 percent increase compared to 2018, it added.
While green shoots are visible, Chestertons said supply is still the single biggest contributor to declining residential prices in the emirate, with 45,000 completed units 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,” said the real estate consultancy.
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 percent in Q4, a notable slowdown from the previous quarter, while villas witnessed a 3 percent 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 sq ft, AED700 per sq ft, AED1,030 per sq ft and AED847 per sq ft respectively.
Jumeirah Village Circle declined by 9 percent, denoting the largest decrease in Q4 in the apartment market, from AED685 per sq ft to AED623 per sq ft. Motor City witnessed a price drop of 7 percent, with apartments available for AED585 per sq ft. More positively, The Views saw a price increase of 4 percent, returning to levels witnessed in Q2.
In the villa sales market, average prices were down 3 percent in Q4, the report said, adding that Jumeirah Park witnessed the highest decline, down 8 percent to AED740 per sq ft. The Lakes observed modest declines of 2 percent, and The Meadows, 3 percent with prices dropping to AED993 and AED822 respectively.
The most resilient villa location was Arabian Ranches, which witnessed a price increase from AED793 per sq ft to AED808 per sq ft 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 percent. DIFC, Discovery Gardens, Dubai Silicon Oasis, Dubailand, International City, and The Views remained unchanged on a quarterly basis.
“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,” said Hobden.
In the villa rental market, Arabian Ranches, The Meadows, The Lakes, Al Furjan, JVT, Jumeirah Islands, Jumeriah Golf Estates and Palm Jumeriah saw no rate change from the previous quarter, further underscoring that rates in these locations may have bottomed out.
The greatest villa rental decreases were felt in The Springs with an average three-bedroom available for AED140,000, denoting a softening of 3 percent and Victory Heights, where the same size villa was available for AED125,000, a decrease of 4 percent.
“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 6-9.5 percent. To put this in context, prime rental yields in major global cities such as London or Hong Kong, are currently below 5 percent,” added Hobden
Source: Arabian Business