‘Subdued’ 2018 rental market in Dubai
▶ Shift to affordable housing will intensify this year as new supply comes on to the market
Dubai’s residential rents will continue to decline in the first quarter of 2018 and remain muted for much of the year, as upcoming supply, the impact of VAT and other factors hold down prices, according to a new report.
“Rent decline is expected to continue during the first quarter of 2018, with new handovers planned in both freehold and leasehold communities across Dubai,” said Dubai property consultancy Cavendish Maxwell in the report.
“The VAT rollout in 2018 could also impact some businesses and their recruitment plans. These factors point to a subdued outlook for residential property rents in 2018.”
The agency said merger and acquisition activity last year also led to job losses, further increasing vacancies in some communities.
Residential rents and prices have been declining in the past two to three year as low oil prices slowed down the economy, leading to job losses and lower housing allowances amid an increase in supply.
During 2017, residential property rents declined at a more pronounced rate than sales prices, resulting in yield compression in most communities, according to Cavendish Maxwell’s 2017 Year in Review report, which is based on figures from its Property Monitor real estate database.
The 12-month decline in residential rents averaged 4 per cent as of December 2017, compared to a 2 per cent average decline in residential sales prices.
In 2017, residential sales prices traded within a close range of Dh1.25 million to Dh1.5m for apartments and Dh1.7m to Dh2.1m for villas and town houses – based on an average price of Dh1.3m for apartments and Dh2.3m for villas and town houses. This represents a narrowing gap between apartment and villa prices.
The sales price movement in the past 12 months has varied not only between communities but also among different buildings within the same community, the report said. This is expected to continue as buyers have an increasing supply base to choose from.
“Property fundamentals such as developer track record, proximity to social and public infrastructure, ease of access, maintenance, among other factors will drive price movement,” the report said.
Off-plan residential properties accounted for the majority of total sales during 2017, with more than 24,900 transactions, Cavendish Maxwell said. It attributed the increase to a combination of factors including lower price inventory, aggressive payment plans offered by developers and new mortgage products from banks.
In terms of completed supply, more than 13,800 apartments and 7,800 villas or town houses were handed over in Dubai last year, according to the report.
About 54,000 units are scheduled to be handed over this year, including delayed projects. However, the actual materialisation rate is likely to be lower and fall in line with previous years, where annual handovers have ranged between 16,000 and 20,000 units.
“Developers are responding to transaction activity and prevailing prices by staggering the release of units either through a delayed launch after a certain percentage of the construction has been completed, or by phased delivery of units within a development. This strategy is expected to continue,” the report said.
An already marked shift in demand towards affordable housing is expected to continue this year. Almost 82 per cent of residential transactions in 2017 were priced below the Dh2m and almost half (47 per cent) were below Dh1m, according to figures from the Dubai Statistics Centre included in Cavendish Maxwell’s report. Furthermore, 85 per cent of all transacted units were apartments, “a clear choice for budget-sensitive buyers”.
Last November, a study by UAE marketplace dubizzle.com and real estate consultancy JLL found that “mid-market” properties – those cheaper than Dh1,000 per square foot – were the only category of the Dubai residential market for which online searches on dubizzle. com rose last year. This indicates growth in demand for affordable housing in a flat market and increasing supply.