Easing in Dubai rentals, prices a 'healthy correction': report

Residential rents and prices continue to decline in the first six weeks of second quarter compared to first quarter 2015, reveals a new report.

Apartment lease rates fell 2.4 per cent, while sale prices decreased 1.5 per cent, leading to a marginal tightening of yields to 7.2 per cent, Phidar Advisory said in its mid-quarter, Q2, 2015, report.

Lease rates for villas fell mere 0.6 per cent though prices declined 2.9 per cent, pushed up yields slightly to 4.7 per cent.

“The ongoing erosion of sale prices is a healthy correction,” said Jesse Downs, Managing Director of Phidar Advisory.

“The more significant concern is the scale and nature of the upcoming, launched and announced projects.”

Emirates 24|7 reported earlier that summer months was the best time to rent a house in Dubai. (Scroll below)

Based on initial transaction data from the Dubai Land Department, the report said apartment transaction volumes fell 1.5 per cent in the first five months of 2015, but villa transactions declined by almost 25 per cent.

The numbers are, however, subject to revision.

The most vulnerable market segment for houses was for units ranging between Dh100,000 and Dh160,000 per annum, with the report expecting a 40 per cent oversupply in five years.

“If we consider only under-construction and launched projects, the majority of the development pipeline is justified due to sufficient total demand,” said Downs, adding, “Overbuilding in the mid-high income segment likely will increase competition and lead to supply reordering.”

The consultancy stated that even a bullish scenario of 4.1 per cent average GDP growth rate cannot absorb all potential supply expansion, including under construction, launched, announced and stalled projects.

In May 2015, Cluttons, a real estate consultancy, said residential housing supply threat may be over exaggerated though supply levels will edge up.

“The risk of an oversupply appears to be minimal, given the expected growth in population of just under 400,000 over this period.

“However the supply-demand equilibrium is likely to be maintained as the population grows in tandem with the rising number of completions,” it said.

HSBC Global Research asserted in its previous reports that Dubai may see supply of 90,000 new units by 2018, but the market will absorb – fairly easily — the new supply even if the population grows less than 5 per cent per year.

“We believe that we have not yet reached the peak of the cycle, and that the market can continue to absorb the expected supply additions over the next few years, even at a population growth rate below 5 per cent,” the bank had said.

Moody’s Investors Service also believes that the government spending on infrastructure and encouraging more foreign investments in various sectors will support the real estate market over the next five years.

Dubai is expected to create over 277,000 new jobs in the run up to the Expo 2020.

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