‘Affordable’ homes out of bounds for end-users
Developers in Dubai are shifting their strategy to affordable housing. However, how much of the announced new supply is actually affordable to endusers in Dubai? Not much.
“Anecdotal evidence suggests a mismatch between affordable stock and the requirements of prospective home owners. While studio and one-bed units appeal to investors, end-user demand is for smaller two-bedroom units at similar entry prices,” according to a new report released by property consultancy Core Savills.
Lower-income occupiers remain hesitant to buy while investors drive demand for off-plan sales, particularly below the Dh1 million price point.
Sales transactions for ready units in the third quarter of 2017 increased modestly at seven per cent, but were overshadowed by the 62 per cent rise in off-plan sales when compared to Q3 2016. Even with this spike in off-plan transactions, the average unit value is 11 per cent lower than last year.
“Instead of adjusting supply to demand, a few developers are taking the risky route of adjusting prices — by occasionally offsetting quality or shrinking their margins. This brings a significant amount of lower quality stock to the market which may find short-term investor take-up on the back of lucrative payment plans, sometimes aided by the high level of marketing spend. If sales and tenant demand for such products has been overestimated, this may not be sustainable in the long term,” warns David Godchaux, CEO of Core Savills.
Instead of adjusting supply to demand, a few developers are taking the risky route of adjusting prices — by offsetting quality or shrinking margins
Burgeoning off-plan activity is also affecting the ready sales market. Individual landlords are trying to keep pace with the overhang of off-plan projects by reducing sales prices, as a result bringing the area average down. This presents opportunities for home buyers.
For instance, in Dubai Marina, due to increasing competition from off-plan apartment deliveries launched at higher entry points, many investors are opting for ready units at lower prices.
sales market
The weakest performing villa districts in terms of sales were Jumeirah Islands and Jumeirah Park, both dropping almost six per cent. A two per cent price increase was recorded in Emirates Hills while few large transactions of new or
David Godchaux, CEO of Core Savills
refurbished villas on the Palm Jumeirah have seen average prices in the area decline by 2.5 per cent, according to Core data.
Apartment sales remain fragmented. Areas such as Business Bay, Jumeirah Lakes Towers and The Views registered only a one per cent drop due to consistent demand for core locations and proximity to office clusters. Jumeirah Village saw the most significant increase in apartment sales prices at four per cent%, largely as a result of the recent hand-over of new higher priced developments such as Belgravia and Park One.
Rental market
The consultancy claims there has been widespread rental contractions across districts in Dubai. As sales prices have not dropped at the same rate, yield compression has been witnessed across most areas and is expected to continue in 2018.
Godchaux explains: “Widespread falls in rents continue to force the market to adjust downwards — an effect that will persist as the next cycles of lease renewals inspire further rent reductions and relocations, particularly among tenants whose rents are yet to reflect the softening market. Although widespread, the magnitude of these drops will likely remain limited.”
Villa rents across Dubai continue to fall, most visibly in prime areas. The lagging impact of budget reductions has encouraged some higher-income households to seek lower rents. The Palm Jumeirah saw the largest year-on-year decline at eight per cent. Similar movements were seen in Emirates Living developments such as The Springs, The Meadows and The Lakes, which saw rental rates fall by six to seven per cent.
Overall, apartments registered broader rental contractions than villa districts. The sub-markets of Dubai Marina and the Palm Jumeirah were the weakest performers, with rents dropping by 10 per cent year on year.
supply
Core estimates that over 5,950 units were delivered in Q3 and forecasts that 17,800 units will be handed over for the whole year.
Godchaux concludes: “Although actual handovers may vary substantially from expected supply figures and even with stronger regulations in place, we remain very cautious about the possible risk of oversupply in the lower end of the market.”
— business@khaleejtimes.com