Dubai: The residential real estate market of Dubai and Abu Dhabi may have bottomed out due to limited changes in capital and rental values, National Bank of Abu Dhabi (NBAD) said in its yearly investment outlook, released Sunday.
In the fourth quarter to December 2016, the rate of decline in property prices stabilised in Dubai and certain mid market witnessed a small uptick. New project activity also picked up substantially in the fourth quarter.
“With only minimal changes reported in both capital values and rents, there appears to a possibility that Dubai and Abu Dhabi residential has possibly bottomed out,” Andrew Styles, director real estate and family conglomerates, and Clint Dove, director of investment strategy at NBAD, said in its global real estate update, which is a part of the bank’s yearly investment outlook.
In Abu Dhabi, average prime rents for 2-bedroom apartments witnessed a nominal decline of two per cent in the third quarter, and average prime sales value also declined by three per cent, while in Dubai both rents and capital remained flat, as per NBAD estimates.
Enhanced tenant incentives are likely to continue for mall operators to attract and retain retailers, the bank stated.
In the third quarter, roughly 1,000 residential units were delivered in Abu Dhabi with 5,400 completed in Dubai. A further 3,000-11,000 are expected to enter the Dubai and Abu Dhabi by this year’s end.
In Abu Dhabi, according to the bank, there were no major completions of retail space. Average store rents within prime mall locations and mall off Abu Dhabi islands remained flat at Dh3,000 and Dh1,860 respectively.
For Dubai on the other hand, rents for commercial use have remained flat. Two retail projects were delivered in the third quarter totalling 28,000 square metres. A further three projects are scheduled to complete by year-end.
London market
London is one of favourite real estate markets for the UAE and Gulf residents, and now a weaker pound against the dollar, to which most of the local currencies are pegged to, is providing added incentive for real estate investors.
Despite robust retail sales volumes in the third quarter, rising inflation in London in 2017 could hurt the market. “Demand remains strong in large dominant retail centres, particularly from international brands. High street investment remained in bullish form, help by domestic HNWs [high net worth] and, as expected, a number of overseas investors,” NBAD said.
In the US markets, investors from China and South Korea were active in 2016. While primary market activity is down, secondary market transaction volumes increased in the latter part of 2016.
In all, NBAD feels that the investments in real estate should be viewed as an asset class that can potentially lower the volatility of returns.
For an opportunistic investor, purchases made out of receivership or administration through auction and via debt acquisition can provide strong returns, although it does place the investor further up the risk curve.
