Dubai real estate oversupply to peak in 2012

Landmark Advisory also says distressed sales leading to accelerated price declines.

DUBAI HOMES: Prices for villas declined five percent, while apartments dropped 5.8 percent in the second-quarter, the report said. (Getty Images)

DUBAI HOMES: Prices for villas declined five percent, while apartments dropped 5.8 percent in the second-quarter, the report said. (Getty Images)

The oversupply of Dubai homes is set to peak in 2012, with vacancies projected at between 25-28 percent, the latest real estate report by Landmark Advisory released on Wednesday states.

The ‘Q3 2010 Dubai and Abu Dhabi Real Estate Report’ also said distressed sales were leading to accelerated price declines.

“As prices are falling faster than rents, this is pushing up yields,” said Jesse Downs, director of Research & Advisory Services at Landmark Advisory.

“This is positive for the market as higher yields are required to attract investors wary of the weak market fundamentals and perceived downside risk. At the moment, financing remains limited, which means investors continue to dictate market trends.”

The report found that sale volumes slowed in the second quarter, compared to the first. Prices for villas declined by five percent, while those for apartments dropped 5.8 percent as a result of limited buyers and tighter lending restrictions.

In neighbouring emirate Abu Dhabi, quality issues could lead to rapid reshuffling of the market as the new higher quality supply is delivered, Landmark Advisory said.

Downs said only 20 percent of high-end properties in the pipeline will meet the standard, which will have a knock-on effect on prices for mid-range homes.

“However, we predict that this trend will be temporary, with performance weakening and not recovering once the truly high-end developments are delivered,” she said.

In both emirates rental costs declined across the board with Dubai villas down 4.4 percent and apartments 5.8 percent during the quarter.

Abu Dhabi rents dropped sharply with an 11 percent drop compared to the marginal fall of 3 percent in the first quarter.

“These declines are supply driven following new on-island deliveries such as Khalidiyah Palace, Al Aryam Tower, Silver and Wave Tower,” Downs said. “Static sales prices and declining rents have resulted in further yields compression; currently at 5.1 percent, and we anticipate that yields will continue to compress in the short term.”

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Posted by: Peter G

So, peak vacancies are due to arrive in 2012? Its probably logical to assume that property values and rentals will only reach somewhere near their bottom around that time as well. The decline in Dubai's real estate industry has has still some way to go. It will be interesting how the Dubai real estate crash will eventually be compared with other famous crashes such as those experienced in Singapore in the late 90's and more recently Spain. For those who bought in mid 2008, it may be 10 years before you see your property's value restored to your original purchase price.. assuming you paid cash. With Tamweel mortgage rates running at almost 8%, the decline in property values simply means you are pouring expensive money into a rapidly depreciating asset and your investment will be sandblasted into rubble before it even has a chance to provide a return on your hard earned cash. Oh well, just another one of life's lessons!

Posted by: Shailesh Bhandari

Such report having different heading and contents should not be published. If you notice the heading is "Dubai Real Estate....." but ithe article mostly discuss Abu Dhabi real estate . The article do not discuss any thing about 2012 or oversupply but is about current market trend. Please get some sense in published reports.

Posted by: MIRZA BAIG

I refer to Mr.Khan's comment on 4th August. Who says DLD not active.They are definitely sending cancellation notices to purchasers

Posted by: Andreas Wiegand

I have 2 colleages who were indepted with several properties in the UAE and who made a run now. What happens to these 'default' properties? Somehow they will come onto the marked again and put further pressure onto prices. I doubt that my colleages are the only 2 people... there will be more to come.

Posted by: Saeid

In stating that the over supply will peak in 2012, I wonder if they are taking into account all the people that will be leaving in the next few years? Surely that will put further pressure on the market

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