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Property prices and rents continue to decline amid new supplies of residential stock

July 19, 2019

Average apartment prices declined 15.1 percent and villa/townhouse prices declined by 14.7 percent in Q2 2019 from a year ago, according to a report by Cavendish Maxwell.

During the same period, rental declines for apartments in Dubai averaged 12.5 percent and villas/townhouses similarly registered a fall of 12.6 percent. Off-plan transfers continued to dominate in Q2 2019, accounting for more than 52 percent of total transfers.

In Abu Dhabi, average sales prices declined by 12.6 percent for apartments in major investment zones, from Q2 2018 to Q2 2019. Villa/townhouse prices registered a similar average decline of 12.1% over the same period. Rents in Abu Dhabi continued to fall in Q2 2019, for both apartments and villas/townhouses.

The Northern Emirates of Sharjah, Ajman and Ras Al Khaimah remain affordable alternatives for buying and renting of properties in the UAE.

The significant volume of new supply recorded in Q1 2019 continued into the second quarter with the handover of 5,250 apartments, 1,300 villas and nearly 500,000 square feet of office space, according to another report by Asteco, a property brokerage.

Whilst the majority of this inventory is located in the new investment areas of Dubai Creek Harbour and Dubai Hills Estate (situated along Al Khail Road (E44)), established communities such as Dubai Marina also recorded additional stock in the form of Sparkle Towers, Orra Harbour Residences and The Residences at Marina Gate.

The delivery of more than 750,000 square feet of office space in Silicon Park (Dubai Silicon Oasis), which was earmarked for completion this quarter, was further delayed, thus providing some relief in Q2 2019.

Despite prevailing oversupply concerns, Developers continued to launch new projects including One Park Avenue at Sobha Hartland by Sobha Realty, Zada in Business Bay by Damac and Vincitore Benessere in Arjan by Vincitore Realty.

In addition, Omniyat recently announced the recommencement of Anwa, which is expected to be the first residential development in Dubai Maritime City (DMC). Completion is anticipated for Q2 2020.

First announced in 2004, DMC – a manmade peninsula spread over 24 million square feet was earmarked to become a purpose-built maritime centre with industrial, commercial, residential and leisure facilities to include six clusters: the Harbour Offices, Harbour Residences, Maritime Centre, Marina District, Dubai Maritime City Campus and the Industrial Precinct. A number of residential and commercial projects were launched leading up to the 2008 peak but came to a halt shortly thereafter due to the global financial crisis.

Continuing on from previous quarters, apartment and villa rental rates softened by 4 percent and 2 percent over Q2 2019, with annual declines settling around the 10 percent mark.

Vacancy rates are on the rise, particularly in the older properties, as new supply continues to outperform population growth.

In addition, as a result of the abundance of options available, Tenant movement picked up with Residents seeking value-for-money options in the form of more affordable/competitive rates, improved incentives, larger units and/or better quality specifications/facilities. 

Interestingly, whilst apartment and office rental rates still remain approximately 15 percent above the 2011/12 market low, villa rents have, for the first time, dropped below that point, albeit, only marginally (-1%). It should be noted, however, that this is predominantly due to the increase in affordable villa communities such as Damac’s Akoya and Nshama Town Square located along the E311 (Sheikh Mohammed Bin Zayed Road) and E611 (Emirates Road) corridors.

Office rental rates came under further pressure and recorded quarterly and annual declines of 4 percent and 16 percent in line with subdued economic conditions.

This downward trajectory is expected to continue for all asset classes in the second half of 2019.

Similar to last quarter, residential sales price contractions were more pronounced than those for rental rates with average quarterly and annual declines of 4 percent and 15 percent for apartments, and 5 percent and 14 percent for villas.

Office sales prices recorded even more notable drops of 6 percent over the quarter and 18 percent compared to the same period last year. 

With the aim to attract a wider range of real estate Investors to the Emirate, the Dubai Land Department (DLD) recently announced the launch of the Real Estate Investment Opportunities (REIOs) initiative, under which several investment products will be offered including: Collective real estate investment funds;  Partial title deeds procedures; A lease-to-own system; and  Investment portfolio applications.

Moreover, the UAE Cabinet approved a total of 122 economic activities across 13 sectors eligible for up to 100 percent foreign ownership such manufacturing, transport and storage, and construction. Each Emirate will determine the ownership percentage of foreign Investors in these activities. (Further details are provided by Al Tamimi & Co. on page 31.)

Government initiatives are continuously being rolled out to stimulate the economy, increase investment and ultimately boost the real estate market but have yet to filter through to create notable employment/business growth.

In addition, ongoing trade tensions between leading world economies are likely to dampen local market conditions and sentiment in the short-term, meaning sales prices are not expected to stabilise/rebound until these improve.

During the same period, rental declines for apartments in Dubai averaged 12.5 percent and villas/townhouses similarly registered a fall of 12.6 percent. Off-plan transfers continued to dominate in Q2 2019, accounting for more than 52 percent of total transfers.