JEDDAH — A total of 13,500 apartments and 800 villas were added to Dubai’s residential real estate supply in 2015, and a further 22,000 apartments and 7,700 villas are scheduled to be delivered in 2016, with downward rental rate pressure likely to continue through to 2017, leading real estate consultancy Asteco has released its latest Dubai report, providing an historic review of last year and 2016 outlook, with affordable communities leading the way in terms of rental demand and investor opportunity against a scenario of significant oversupply looming in the high-end and luxury segments.
“However, if we look to the medium and long-term, the outlook is more positive with demand more than likely to grow in line with the progress of key infrastructure projects currently underway, such as Dubai World Central Airport and Expo 2020,” said John Stevens, Managing Director, Asteco .
Residential sales recorded across-the-board declines, with villa sales prices down year-on-year by 11% and apartments by 8%. Villas on Palm Jumeirah recorded price declines of 13% over the year, dropping to AED 2,475 per square foot on average and The Meadows was also down 15% to AED 1,150.
End-users, rather than investors, were the predominant buyers of villas and townhouses, with a clear preference for smaller 2, 3 and 4 bedroom units, rather than large villas. New communities such as Mudon and Arabian Ranches Phase 2 saw improved levels of activity, offering better-priced yet good quality alternatives to some of the more established areas.
At the high end of the apartment market, Jumeirah Beach Residence was down 16% to AED 1,370 per square foot and apartments on the Palm Jumeirah dropped 14% to AED 1,720 per square foot on average.
Villa rentals were down 9% on average year-on-year, but Al Barsha recorded an increase for three-bedroom villas, up 9.2% to AED 213,000 per annum while in Mirdiff similar properties rose 4.2% to AED 138,000.
The biggest falls came in Jumeirah and Umm Suqeim where three-bed villas dropped more than AED 50,000 or 20% on average to hit AED 195,000, while larger four-bedroom homes in Arabian Ranches and Jumeirah Park were also down 19% to AED 243,000 and 15.5% to AED 145,000 respectively.
“With fresh new supply entering the market, this is forcing property owners, especially of older independent villas, to become increasingly competitive on pricing,” remarked Stevens.
With supply handover slower than anticipated in 2015, apartment rental rates remained broadly stable over the year, dipping just 1% on average, although Asteco recorded disparities between different areas.
Apartment rental rates were down by 4% on average, with Sheikh Zayed Road recording the highest drop of over 12%. Dubai Marina and Palm Jumeirah both saw a year-on-year dip, with a one-bedroom apartment dropping 13.3% to AED 98,000 and 10% to AED 135,000, respectively.
The DIFC area was not immune either in 2015, two-bedroom units have dropped 8.7% to AED 158,000 per annum, as did JBR with the highest average decline for a two-bedroom apartment, dropping 9.2% to AED 148,000.
“For property owners, adjustments in terms of rental expectations and payment flexibility will have to be made. And, as usual in cases of increased supply, better quality, well managed or value-for- money properties will be able to achieve higher occupancy levels than others,” noted Stevens.
The commercial office sector fared slightly better despite significant new space of 500,000 square meters coming online in 2015 and 1.1 million square meters set to be delivered in 2016. H1 2015 saw improved levels of demand leading to moderate increases in rental rates in certain areas.
“The majority of new office supply entering the market this year will be strata-owned buildings in popular office areas like Business Bay and Jumeirah Lake Towers. Sales demand is expected to come primarily from SME level end-users,” added Stevens.
Source: Zawya:The Saudi Gazette