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Dubai residential rents on the decline

DUBAI, July 14, 2015

A new era for Dubai’s residential market is on the horizon, as rental rates for apartments and villas across the city declined by an average of two per cent in the second quarter of 2015 compared to the previous quarter, said a report.

The UAE emirate's property market witnessed a five per cent year-on-year fall in the rental rates of villas, while there were marked declines at the higher priced end of the market, stated property expert Asteco in its report.

Homes for sale also recorded an average fall of two per cent, with some areas performing significantly worse than others dropping 11 per cent year-on-year for villas with apartments decreasing by seven per cent, it added.

"The softening in Dubai’s residential rental market appeared earlier than we originally anticipated, offering tenants in the emirate an opportunity to recoup somewhat after several tough years of high rents," remarked John Stevens, the managing director for Asteco.

“The decrease was felt throughout the market and areas with a significant amount of completed new supply were the most affected. Additionally, some buyers of nearly completed buildings were keen to sell at negative premiums due to the imminent completion of the building, which required final payment,” he added.

The highest quarter-on-quarter apartment rental declines were recorded on Sheikh Zayed Road (seven per cent), Palm Jumeirah (six per cent) and Jumeirah Beach Residences (seven per cent).

Conversely, IMPZ, Dubai Sports City and Dubai Silicon Oasis registered higher rentals compared with 2014, of between 6-13 per cent, due to the completion of community infrastructure and increased occupancy levels, making them popular mid-market residential areas.

In the villa segment, the handover of projects like Casa Villas at Arabian Ranches brought rental rates for the area down by seven per cent quarter-on-quarter, and 15 per cent year-on-year, stated the resport.

Over at the Mudon community, the ongoing handover of its three and four-bedroom townhouses, with competitive pricing starting at Dh175,000 ($47,635) per annum, put pressure on landlords of neighbouring developments to secure and retain existing tenants.

“We even saw a six per cent decline for Palm Jumeirah, with the handover of the lower specification Palma Residences’ townhouses impacting rental rates due to their lower price band. So we are seeing a similar tenant-friendly trend in the broader villa market, with more flexible instalment plans for example, and this is set to continue as areas like Dubailand continue to deliver new supply,” noted Stevens.

"Apartment sales in the second quarter were marked by a shift towards more affordable properties with locations such as IMPZ, Dubai Silicon Oasis, International City, and the recently handed over Queue Point and Sky Courts developments in Dubailand, witnessing sustained demand as yields for studio and one-bedroom apartments, in particular, remained attractive," he added.

According to Asteco, affordability was also a priority for villa investors with Jumeirah Village recording a high number of transactions for some of the townhouse properties by Nakheel and in Indigo Ville, priced at Dh700,000 ($190,544) up to Dh1.2 million ($326,646).

In comparison, larger properties, including five and six-bedroom villas, saw minimal transactions completing in communities such as The Villa or Dubai Sports City, despite strong rental demand, it stated.

“However, despite strong transaction levels, the increasingly competitive market environment, with a lot of new supply, means that the two per cent quarter-on-quarter decline is not going to be a temporary blip, with more pressure on owners to review their selling price still to come,” said Stevens.

Asteco also noted an emerging trend by a limited number of purchasers, who were advertising off-plan properties, not yet in the construction phase, at negative premiums, in an attempt to relinquish financial obligations. 

This quarter, it was the office sector that saw the most gains, with an average two per cent growth in rental rates, dependent on area, although average sales prices declined by one per cent.

Leasing-wise, Dubai International Financial City (DIFC) witnessed an 11 per cent quarter-on-quarter growth with existing stock almost fully occupied and companies eyeing expansion forced to seek space in nearby buildings, which has benefited development such as Central Park Towers, which attained rates of Dh180 ($49) and Dh250 ($68) per sq ft for shell and core and fitted space respectively.

Index Tower’s leasing rates also increased up to Dh350 ($95) per sq ft, as full floors were subdivided to offer small, fitted space to companies looking to set up at the DIFC free zone.

However, previous star performer Business Bay saw a 10 per cent quarter-on-quarter decline in leasing prices, affected by the handover of a substantial amount of office space, with Asteco predicting more pain to follow with a further 1.3 million sq ft of new supply to be delivered in the next few years.

“The office sales market has essentially moved away from investment buyers to one where end-users are the most common buyers for completed buildings. In the future, we expect sales prices to come under pressure in areas where significant supply is due to be handed over,” remarked Stevens.-TradeArabia News Service

Tags: Dubai | Asteco | residential | rental rates |

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