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While other communities saw a double-digit decline in villa rents, Palm Jumeirah’s rates retreated by just 2 per cent. Image Credit:

Dubai’s tenants and end users will continue to benefit from lowering apartment and villa prices, as well as a softening rental market, a trend that will continue for the rest of the year, says international real estate services firm, Chestertons, in its recently released Q2 Dubai Market Report.

The declines are a result of continued oversupply in Dubai’s residential real estate market, where an anticipated 47,502 apartments, villas and townhouses are set to be completed this year, almost double of that delivered in 2018.

The need to undertake necessary steps to mitigate any challenges posed by upcoming supply have also been highlighted recently in a report by Richard Paul, head of professional services and consultancy, Savills Middle East, who said the Dubai property market needs better planning to address oversupply challenges.

Demand and supply mismatch

Nick Witty, managing director of Chestertons Mena, said that in the short term, oversupply will continue to soften the value of Dubai’s residential real estate market. This is being compounded by several developer incentives including five-year post-handover payment plans, registration fee rebates, freezing property service charges and guaranteed rental returns.

Similarly, landlords are offering prospective tenants rent-free periods, multiple rent cheques, and even short-term leases. “The bottom line is Dubai will continue to be tenant and home buyer-friendly for the foreseeable future, until demand has caught up with supply.”

The bottom line is Dubai will continue to be tenant and home buyer-friendly for the foreseeable future, until demand has caught up with supply.

- Nick Witty, managing director of Chestertons Mena

In the property sales market, prices for both apartments and villas witnessed a decrease of 4 per cent in the second quarter.

From a villa perspective, Palm Jumeirah remained the most resilient, softening by 1 per cent to Dh1,967 per square foot. In contrast, The Lakes witnessed the highest price decline at 6 per cent to Dh1,038 per square foot, while declines in The Meadows/Springs dropped 5 per cent to Dh854 per square foot, followed by Jumeirah Park softening by 4 per cent to Dh827 and 3 per cent in Arabian Ranches to Dh833 per square foot. This could be attributed to the fact that many older villa communities are showing signs of fatigue and are in need of refurbishment. This has sparked higher demand for newer properties.

Dubai apartment sales

In the apartment sales market The Greens, Dubailand and Dubai Motor City showed relative levels of resilience, only witnessing a 2 per cent decrease from the previous quarter to Dh907 per square foot in The Greens and Dh706 per square foot in Dubailand and Dh700 per square foot in Dubai Motor City. The Views and Downtown Dubai witnessed the highest declines of 9 per cent and 7 per cent resulting in prices of Dh1,090 per square foot and Dh1,401 per square foot respectively, which is likely a result of oversupply. At the value end of the scale, International City witnessed no movement with prices remaining at Dh481 per square foot.

“To remain competitive, we have seen developers becoming increasingly innovative. For example, in partnership with Dubai Multi Commodities Centre (DMCC), Emaar is offering buyers of its Executive Residences in Dubai Hills Estate a free three-year renewable business license, a free three-year renewable family residency visa as well as 100 per cent business ownership for some industry sectors,” said Witty.

Capital values

Dubai-based real estate consultancy ValuStrat has also published its second quarter ValuStrat Price Index (VPI) for residential properties, which displayed an overall 11.5 per cent annual fall in capital values, with quarterly declines decelerating to 2.9 per cent. This downward trend resulted in 29.3 per cent citywide capital value loss since the peaks of mid-2014. All established freehold locations monitored by the VPI witnessed price drops since the last quarter, ranging from 1.2 to 4.2 per cent.

Three out of 26 locations measured by ValuStrat saw single-digit declines annually — villas in Palm Jumeirah and Al Furjan, as well as apartments in Dubai Sports City. Capital values dropped more than 15 per cent annually for apartments in Palm Jumeirah, Discovery Gardens and The Greens. Haider Tuaima, head of real estate research at ValuStrat, said, “As capital values continue to soften, there was a relatively strong quarterly sales volume performance for nine months in a row. The off-plan sales are up 5.5 per cent, ready sales are stable, when compared to Q1.”

Rental property market

The Chestertons report also said that in the rental market, there was a greater softening compared to the first quarter, with average apartment rates declining by 5 per cent and villas by 8 per cent quarter-on-quarter. As a result, many tenants have seen an increase in potential property options.

Dubai Silicon Oasis saw the largest decline with a typical two-bedroom apartment now 12 per cent below the quarter-one price at Dh60,000 per annum. Dubailand and Discovery Gardens saw average declines of 8 per cent with a typical two-bedroom renting for Dh51,000 and Dh75,000 respectively. The Views, The Greens, Dubai Sports City and Jumeirah Lakes Towers recorded an average softening of between 1 per cent and 3 per cent, with prices of Dh120,000, Dh100,000, Dh68,000 and Dh89,000 respectively for a two-bedroom apartment.

Established communities, including Dubai Marina and Business Bay, which in the past have weathered price reduction to a certain extent, witnessed declines of 5 per cent in the second quarter, with a two-bedroom apartment in the Marina now available for Dh110,000 and in Business Bay for Dh100,000.

“As such, Jumeirah Village Circle, Business Bay, Dubailand and Mohammad Bin Rashid City are where the largest rent reductions are likely to be felt going forward due to the expected supply in these locations,” added Witty.

In the villa rental market, Jumeirah Islands, The Meadows and Arabian Ranches all witnessed declines of 11 per cent on average, with prices for a typical four-bedroom unit now Dh210,000, Dh180,000 and Dh160,000 respectively. Palm Jumeirah was the most resilient location in the villa rental market, denoting a 2 per cent decline, which was closely followed by The Springs, which fell by 3 per cent.

ValuStrat also reported that Dubai’s net yields averaged 5.7 per cent, with apartments at 5.9 per cent and villas at 4.7 per cent. The average residential occupancy rate stood at 84 per cent.