As the local economy continues to adjust to softening global conditions, the overall residential values and rents in Dubai are set for a further decline throughout 2016, according to leading international real estate consultancy Cluttons.

After falling by an average of 3.1 per cent during 2015, residential values fell by an additional 2.2 per cent during the first quarter of 2016, stated Cluttons in its Dubai Spring 2016 Residential Property Market Outlook.

This marks the strongest quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline, highlighting the challenges faced by both the apartment and villa sales markets, it added.

Faisal Durrani, the head of research at Cluttons, said: "We have been carefully monitoring the declining residential values over the past two years, but the persistent headwinds to local and global economic growth are continuing to erode overall demand and capital values are still softening, albeit at a slightly quicker rate."

"In the villa market for example, values at the end of the first quarter stood at an average of close to Dh1,375 ($374) per sq ft, which represents a near 3 per cent decline since the end of 2015," stated Durrani.

"The latest change means villa prices are nearly seven per cent down on this time last year. With the exception of Hattan Villas at The Lakes, every villa submarket that we track registered price falls in the first quarter. Looking back at 2015, the market registered a 5.6 per cent fall in prices in line with our expectation of a drop between 5 per cent and 7 per cent, which Cluttons predicted back in 2014. During 2016, it is our view that a further decline of around 5 per cent is likely on average, with some villa submarkets likely to see price falls of up to 7 per cent," he added.

According to Cluttons’ report, apartment values demonstrated greater resilience during the first quarter, with marginal declines across the board. Aside from mid-range apartments at Business Bay, which  registered a 12.8 per cent decline in average prices to Dh1,068 per sq ft, several submarkets saw values stagnate in the 12 months to the end of Q1, including more affordable locations such as International City, Jumeirah Lake Towers (JLT), Discovery Gardens and the International Media Production Free Zone (IMPZ).

The resilience of values in such locations demonstrates the emphasis being placed by buyers on areas they perceive to offer the best value for money, with homes priced between Dh650 – 750 per sq ft and Dh1,300 – 1,400  per sq ft being in most demand. This has in turn helped to sustain values at these levels in some of the core locations in the city.

Durrani commented: “Apartment values on average declined by a marginal 0.8 per cent over the last two years, reflecting greater resilience in this segment of the residential market thus far. That said, there has been a reduction in the number of transactions registered during Q1 2016, suggesting there may be a lag before apartment values start to slip.

Cluttons data shows that, overall, the supply pipeline’s expansion appears to have slowed, with no major shift in forecasts expected for the next three years.

During 2016, Cluttons expects 7,058 units to complete, followed by a further 10,299 deliveries in 2017.
The number of handovers is expected to rise to 16,026 in 2018, before dipping back to 9,786 in 2019, said a top official.

Richard Paul, the head of residential valuations at Cluttons UAE, said: "The number of villa and apartment handovers between now and 2018 is still quite evenly split. The overall stabilisation in the projected rate of handovers bodes well for the market as it hints at the potential for strong value rises once the planned residential handovers are absorbed by the market in two to three years’ time."

"This of course excludes smaller projects, which may increase the number of handovers slightly before 2018, although the impact of this is likely to be quite minimal," he added.
 
Cluttons data also shows that, Dubai’s rental market remains more resilient than the sales market, with less severe declines in rates.

During 2015, rents across Dubai’s freehold residential areas declined by an average of 1.3 per cent. Q1 2016 registered a further 2.7 per cent drop in rents, which has dragged the annualised rate of change down to -3.5 per cent.

In contrast to the sales market, the report states that villa rents have shown greater stability, slipping by 1.8 per cent in Q1, leaving them 2.8 per cent down on the same time in 2015.

Apartments on the other hand have registered a fall of 4.1 per cent in rents during the first quarter of 2016, leaving them 4.7 per cent below where they were at the end of Q1 2015.  

On the 2016 outlook, Durrani said: "It is our expectation that rents will decline in general by a further three to five per cent this year, on average, with the top end of the property spectrum seeing more significant corrections of five to seven per cent."

"Weakness in the jobs market tops our list of concerns, particularly if there is a spill over into sectors beyond finance and banking, which is already seeing a growing trickle of redundancies," he noted.

As Dubai’s economy becomes more intertwined with the global economy, it will be influenced to greater extent by events in the international arena. With further weakness expected in China and the EU, a turn-around in global growth is unlikely this year, stated Durrani.

"As we have stated previously, the impact of the World Expo is yet to materialise and is likely to impact the rate of job creation, which will have positive ramifications for both the sales and rental markets in the city; however this is not expected until around 2018," he added.-TradeArabia News Service