Yields for affordable homes will decline
dubai — Residential yields in Dubai’s affordable market are expected to decline much faster than in the prime market, say a report released by real rstate consultancy Core Savills.
Over 2014-2016, the prime segment saw a combination of weakening prices but comparatively stable rents, encouraging a share of tenants to shift towards ownership. This drove down rental demand and gradually caused prices to stabilise over 2017.
This caused yield compression by an average of 57 base points, representing a relative decline of 11.2 per cent across prime and mid-market communities during 2017.
David Godchaux, CEO, Core Savills, says: “In the near term, we expect prices to continue stabilising in the prime and mid-market segment but the current decline in rents to decelerate, allowing yield compression to slow down.”
Meanwhile, in the affordable and lower mid-market segment, the stronger decline in sale prices and only a slight weakness in rents over 2014-2016 allowed yields to rise and in turn increase buyer demand. However, most of this buyer demand was led by investor buyers as opposed to end users; who could not afford to shift to ownership due to continued affordability issues.
Godchaux states: “Investor buyers continue being drawn to the affordable segment due to the current high yields and easier payment plans while a few developers
Investor buyers continue being drawn to the affordable segment David Godchaux, CEO, Core Savills
see robust off-plan transaction volumes as an encouraging sign and continue bringing more stock to the market. Given that affordable segment’s supply pipeline is looming with substantial off-plan deliveries in the run-up to 2020, the high yields expected by many investors post handover are unlikely to be sustained.”
He further adds: “If rental demand of these projects is insufficient at handover, this supply surge is expected to exert considerable downward pressure on rents, leading to faster yield compression. Eventually, this contraction in yields will reduce investor demand, in turn pulling sales prices down over the mid-term.”
Dubai’s overall real estate market faces other headwinds — the “ongoing strength of the US dollar and the imminent — albeit probably limited — inflationary effects of the introduction of VAT are expected to compress investment yields.”
— deepthi@khaleejtimes.com