Luxury residential villas cover the fronds of the Palm Jumeirah island resort Image Credit: Bloomberg via Getty Images

Property values in Dubai have seen a significant decline over the past 18 months and appear set to soften further this year, going by first quarter data. However, agents say rates are now low enough for buyers to conclude transactions — particularly at the affordable end.

Prices of apartments and villas contracted 2-5 per cent in the first three months of this year, according to a survey by property consultancy Cavendish Maxwell. Apartment prices dropped 7 per cent, while villas fell 8 per cent compared to the same period in 2015.

More supply

Greater supply is largely responsible and may continue to impact sales this year. About 36,000 units will be added to Dubai’s inventory in 2016, of which 4,584 were delivered in the first quarter.

Nearly half (46 per cent) of the 60 Dubai real estate agents polled by Cavendish Maxwell expect apartment prices to drop by up to 5 per cent over the next quarter. Meanwhile, 39 per cent see a similar decline in villa values. But only 34 per cent expect apartment rentals to decline up to 5 per cent over the same period, and 41 per cent foresee villa rents dropping.

“Market sentiment has affected both buyers and sellers, who are waiting to see a slowdown in decline indicating that the market is stabilising,” explains Dima Isshak, Research Manager, Cavendish Maxwell. In terms of rents, market sentiment suggests that agents believe there may be a slow down on the decline experienced on rental rates during the first quarter of 2016, and that perhaps we are “over the worst”.

Market bottom

Others also hazard the view that the market has bottomed out. Price indices run by ValuStrat and ReidIn both showed a decrease of only about one percentage point in February. ValuStrat’s index posted no significant change over the previous five months. ReidIn’s February sales price indices feel 0.9 percentage points over the month before, or 10 per cent year on year.

“As far as the freehold villa market is concerned, the levelling off started in October last year where most of the locations saw no change in prices, and The Lakes and Jumeirah Islands saw less than 1 per cent dip,” Haider Tuaima, ValuStrat head of research told Gulf News last month. “For the past eight months, early bird investors have been seeking good properties in sought-after locations that provide them with attractive yields and/or capital appreciation at low entry points.”

John Stevens, Managing Director at Asteco, says price declines will continue at a moderate pace this year. “Rates in several developments have already declined sufficiently to encourage the conclusion of transactions.” Last year’s corrections have allowed the market to catch its breath and regain investor confidence in Dubai’s long-term prospects vis-a-vis other property hotspots.

In terms of rental yields, Dubai averages just over 7 per cent, far more attractive than Hong Kong (2-3 per cent) and London (3-4 per cent). “Yields can be as high as 10 per cent for prestigious developments on the Palm Jumeirah, for example, with hotel-managed apartments at Dukes Dubai and Anantara representing a sound investment,” Stevens explains.

Isshak, too, cautions a long-term approach, particularly since the positive effects of Expo 2020 will likely only begin to impact the market towards the middle of 2017. “Sale prices may not rebound for the next 6-12 months,” she says, adding that off-plan buyers should look for sustainable communities with a good quality of life.

As with last year, there are more transactions in the affordable side of the market. Chestertons Mena data shows that nearly 220 transactions were recorded in first three months of this year for luxury properties in Downtown and Palm Jumeirah, while the number was up to 450 for International City and Discovery Gardens, says Chestertons UAE Country Manager Robin Teh. That echoes 2015’s transactions, where 2,000 sales were posted in affordable areas, versus 1,200 for luxury projects in Downtown and Palm Jumeirah.