Dubai: Investors are less likely to try selling their property in Dubai as the gap between asking price and achieved value widened further in the past 12 months. The 10 per cent differential between asking and achieved prices during the fourth quarter of 2009 is now estimated at 15 per cent, according to newly released figures by Jones Lang LaSalle.
In the past 12 months, while asking prices were down 6 per cent, achieved values were lower by 12 per cent. A further 7,800 units were delivered in the fourth quarter, taking the overall for the year to 36,000 units. Values could be further distorted with a further 25,000 units delivered this year. Any improvement will thus have to rely on increased mortgage lending finding its way into the market. The Jones Lang LaSalle report is hopeful: "The residential market will likely see improved lending as more banks are injecting liquidity into the mortgage market."
But challenges persist, especially on the rental side. According to a report by CB Richard Ellis, also released yesterday, the rental decline in Dubai's residential space for the full year was 17 per cent. A further slip in values cannot be ruled out.
"Diminishing lease and occupancy rates have resulted in some landlords willing to absorb service charges on behalf of the tenant, whilst others are offering rent-free periods as an incentive," said the CB Richard Elli report.
"Other landlords are offering rates of 10-12 per cent below prevailing market levels in order to secure tenants willing to pay their rent a full year in advance."
If there is a sliver of hope on the residential side — brought on by improved mortgage lending — it's hard to find any in the commercial real estate space. "Citywide vacancy rates have increased to around 41 per cent and are expected to exceed 45 per cent over the next year as new supply continues to be released," the report added. In an economy that is still nursing its way back to health, such vacancy rates will prove to be a heavy burden on the property market.
"There are landlords who are now willing to lease offices at rates that would just cover their maintenance charges and then some," said a leasing agent. "This would have far-reaching consequences for similar properties in that locality."
More so, as fresh stock in locations such as Business Bay is set to hit the market regularly this year.
"Service charges and mandatory housing tax are likely to represent two of the major gripes for investors and unit owners in the year ahead," said the CB Richard Ellis report.
As has been the case in 2010, it will again come down to which location in Dubai can offer investors or those looking to lease property can offer more for less. Dubai's property market is skewed heavily in favour of the tenant or a buyer looking to acquire assets on the cheap.