The real estate market has marginally edged upwards in Q1 2017, although prime areas continue to lag in performance, says real estate adviser Core Savills. While most market players are in consensus over the prices bottoming, a range of economic factors are resulting in contradictory indicators of recovery, according to the firm’s Q1 Dubai residential market update.

“Looking at real estate investment in Dubai in 2016, we witnessed a year-on-year contraction in the total number of investors – notably amplified by non-regional buyers. A strong dollar continues to affect the traditional buyer nationalities such as Indians, British and Pakistanis as their currencies have devalued significantly over the last year. We also saw receding regional demand as GCC investors, although same in number, displayed a 21% drop in total investment amount” highlighted the report. Nonetheless, Dubai continues to be the most mature real estate investment destination in the region with a diverse pool of investors from over 136 countries.

Fears over absorption of supply to be delivered in 2017 have partly dissipated, as explains David Godchaux, CEO of Core Savills: “Around 3,100 units were handed over in Q1, representing just 15% of the total stock announced to be delivered by developers in 2017. We anticipate only 15,000 more units to be brought to market until the end of the year; which represents a 50% shortfall from their announced number (36,000). This large discrepancy between the announced and delivered stock has been a historical trend in Dubai which has helped developers address oversupply concerns by aligning demand and delivering products at realistic prices, aiding absorption – albeit in the mid and prime segments.

Sales market

“A distinctive trend continues to prevail in both apartment and villa submarkets. Although softening for almost two years, the prime segment continues to indicate further contraction in prices – while low to mid-segment submarkets are keeping up a steady upward creep, having reversed their course since Q1 2016” added Mr Godchaux.
End-users and particularly investors continue to favour urban areas such as Dubai Marina and Downtown Dubai:

“Dubai Marina saw the highest spike in year-on-year off-plan transaction volumes, at 165%. This rise was underpinned by many project launches over the past few months, resulting in a sentimental boost for the overall district with average sales prices stabilizing and starting to show early signs of recovery. However, Downtown Dubai displayed a negative contrary performance in sales prices due to a robust off-plan sales activity (91% year-on-year rise) positioned at lower price points, in fact casting a shadow on the secondary sales market (nearly 4% drop)” detailed the report.

“City Walk has seen a robust absorption of its available stock over the last year with many initial owners already trading at a premium in secondary sales, a trend unlike any of the prime districts currently in the market”.
In the villa sales market, “The Springs and The Meadows continue to be the top performing districts with a 5% year-on-year rise; while Jumeirah Village was one of the lowest performing villa districts with a 7% year-on-year drop” highlighted the report.

“Apartments in Dubailand and Jumeirah Village have witnessed stable sales prices as low to mid-income occupiers are willing to trade connectivity for newer, better build, and value-for-money products in these fringe areas” adds Mr.Godchaux.

Mr. Godchaux also pointed out that “off-plan sales are increasingly regaining a foothold, particularly products from reputed developers – although having a detrimental effect on secondary market sales, notably in prime apartment districts. While owners of existing properties try to sell their units, master developers offer products positioned at attractive entry points to a similar target pool, particularly investors. With a wider product base, developers can exercise a higher level of price control on the submarket and largely have an upper hand over individual landlords.”


According to the report, The Views and Discovery Gardens saw the highest apartment rental drop at 7% followed by The Greens at -5%. On the Palm, villas have faced an amplified rental drop at 9%, while apartments dropped at 4%.
“Looking at the rental market, the total pool of tenants has decreased over the last 2 years due to macroeconomic employment deterrents while new occupier demand has not fully covered the gap. Of this occupier demand, a segment of tenants who could afford to shift to ownership in the backdrop of relatively lower acquisition prices and higher yields, have done so – reducing the existing pool of renters even more., The market continues to bring new supply at unchanged pace from the past few years, adding downward pressure on rentals”

Mr. Godchaux further emphasises, “For this reason, we do not expect a recovery in rental levels in 2017 across most of the residential sub-markets and are firm on our previous forecast – a trend further illustrated by the widespread rental drops across 19 of the 20 residential districts that we track”

“As the drop in rentals accelerates in the wake of slowly recovering sales prices, we have witnessed a mechanical compression in yield levels by up to 100 base points across most of the residential districts. We expect further contraction in yields by the end of 2017 on the back of price recovery and continued rental softening.” – highlights the report.

In his concluding remarks, Mr. Godchaux says “New employment figures for the current year are expected to determine the timing and amplitude of rental recovery. We foresee a potential uptick in rents in 2018 as structural improvements in the employment market in the run up to Expo 2020 and an improved macro-economic environment is anticipated to bring new occupier demand”.

Source: Core Savills

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