Dubai's residential prices down 40% since Q408 - report

Dubai's residential sales prices have seen an average 40 percent to 42 percent decrease since Q4 08, a study report has revealed.

Colliers International, the global real estate consultancy, on Sunday, released the GCC Overview Report, which indicates that the impact of the global economic and financial crisis on Gulf real estate markets has been swift and dramatic leading to a decline in real estate capital values and rents.

According to the report, there has been a 39 percent decrease in average office sales prices in Dubai between Q3 2008 and Q1 2009.

While there has been a 40 percent to 42 percent decrease in average residential sales prices since Q4 2008, and a 20 percent to 40 percent decrease in residential rental rates dependent upon the circumstances of the landlord.

The report also states that the emirate's real estate average yield has been 8.9 percent on residential property and 8.8 percent on office property.

The demand projections for Dubai's retail property can only absorb a further 140,000 square metres of Gross Leasable Area (GLA) before being oversupplied, the report stated.

In Dubai, Colliers identifies a number of trends that provide benchmarks that would enable the return of investor confidence. 

Primarily, a marked improvement in the global economy, and with it a recovery in oil prices is of great importance, as well as regulatory reforms aimed at labour market flexibility.  

"The ability of primary tier developers to focus on existing inventory, a prioritisation of ‘affordable housing’ in the future, and a shift in investor activity towards completed, income-generating assets targeting a wider income demographic will also act as indicators of a possible return of investor confidence," the report said.

The ireport's findings indicate that the extent of the impact of the global crisis is primarily dependent on each market's exposure to global economic drivers and the level of speculation that occurred prior to the price peak last year.

Commenting on the real estate market scenario in the Gulf, Ian Albert, Regional Director, Colliers International said: “The impact of the global crisis continues to be a lack of liquidity and stricter lending criteria when compared to last year."

"In the last six months, a relatively short space of time, we have witnessed the switch from speculators to end-users and occupiers, and now to professional investors as the main type of purchaser in these markets,” he added.

“The consequence is the increasing importance of investor yield in the market place, and as long as a significant price/yield gap exists, we foresee difficult times ahead in terms of price stability and transactional activity.”

The report's other key findings:

Doha
•    Rentals for newly constructed office space have softened by 10%-15% over the last four months.
•    Sales of residential properties have collapsed due to the lack of finance and a wait and see attitude on the part of buyers.
•    The total shopping mall supply is still on track to increase by 100% between Q1 2009 and Q4 2010.
•    $17bn has been earmarked to boost the infrastructure for tourism over the next five years.

Riyadh
•    Average yield on office property is 11% and average yield on residential property is 10%.
•    Average residential sales prices have dropped 23% due to negative market sentiment and the positive impact of falling construction costs.
•    Newer retail developments show a shift towards the presentation of an overall entertainment destination.

Makkah & Madinah
•    Growth of religious tourism buoyed the Kingdom’s hospitality sector accounting for 51% of the country’s total tourist arrivals in 2008.

Jeddah
•    Average yield on office and residential property is 10.5%.

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