The residential sale prices in Dubai witnessed a drop in the first six weeks of the third quarter with rates falling 4 per cent for villas and 0.6 per cent for apartments, compared to the previous quarter, according to a report.

However, the Q3 2014 apartment and single family home (SFH) or villa sale prices are still up 28.8 per cent and 14.5 per cent year-on-year, said the Phidar’s House Price Index.

Apartment and SFH sale price performance varied across Dubai, it said. For apartments in The Greens, prices increased by 0.26 per cent, but Uptown Motor City decreased by 0.94 per cent. For SFHs,  Jumeirah Islands declined 8.4 per cent, but The Lakes increased 6.4 per cent, it said.

In Q2, average lease rates increased for both apartments (1.4 per cent) and SFHs (0.8 per cent), but inflation-adjusted rents declined in select apartment and SFH communities, it stated.

For example, average nominal lease rates in The Residences increased 0.76 per cent in Q2, but in real terms this equates to a 0.1 per cent decline. The Q2 rent stagnation in The Greens equated to a 0.8 per cent decline in real terms. In the Arabian Ranches, the modest nominal rent increase equated to a 0.01 per cent real decline, the report said.

During the first six weeks of Q3, preliminary data indicates that nominal lease rates declined 2.9 per cent for apartments and 5.6 per cent for SFHs. However, both are still up YOY: apartment average lease
rates are up 14.9 per cent compared to Q3 2013 and nominal average SFH rents are up 0.9 per cent, it said.

Phidar’s report said the premium for completed properties shrank considerably in the third quarter compared to off-plan properties in Q2.

For single family homes, the current off-plan discount is approximately 15.6 per cent, which is on the lower limit of the acceptable range of 15- 20 per cent, said the expert.

"Considering the preliminary Q3-14 data, if price attrition and/or stagnation continues for completed properties, then this trend should also lead to erosion of off-plan sale prices," it added.

The expert pointed out that although the market was technically undersupplied, rent inflation had slowed. "This is likely due to ambitious expectations in H1-2014 that pushed up asked rents beyond affordability constraints. Housing demand is relatively elastic, but alternatives, like sharing and relocation to other emirates, exist and form an - albeit pliable - ceiling," it stated.

According to Phidar, the emirate needs as many as 30,000 additional units through 2018 to maintain rent stability.

"Residential development opportunities are still ample in Dubai, but the market would benefit exponentially from developer specialisation, particularly in the most under-supplied assets (middle income housing)," the report added.

The consultancy believes that over this period another 15,000 units could be reactivated from stalled projects thereby creating a viable supply gap of as much as 20,000 units.

"Clearly, residential development opportunities remain in Dubai, however, the market would benefit from developer specialization, particularly in the most undersupplied assets: middle income housing," the report added.-TradeArabia News Service