By Staff writer
Cluttons says 2.2% decline is biggest quarterly decrease in average residential values in five years
Residential property prices and rents in Dubai are set for a further decline throughout 2016 as the local economy continues to adjust to softening global conditions, according to real estate consultancy Cluttons.
Its Dubai Spring 2016 Residential Property Market Outlook showed that after falling by an average of 3.1 percent during 2015, residential values fell by another 2.2 percent during the first quarter of 2016.
This marks the strongest quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline, highlighting the challenges faced by both the apartment and villa sales markets, Cluttons added.
Faisal Durrani, head of research at Cluttons said: “We’ve been carefully monitoring the declining residential values over the past two years, but the persistent headwinds to local and global economic growth are continuing to erode overall demand and capital values are still softening, albeit at a slightly quicker rate."
He said villa prices are nearly 7 percent down on this time last year, adding that a further decline of around 5 percent is likely on average.
According to the report, apartment values demonstrated greater resilience during the first quarter, with marginal declines across the board.
Durrani added that Cluttons is expecting to see apartment values decline by 3-4 percent this year as transactional activity slows further.
Cluttons data showed that, overall, the supply pipeline’s expansion appears to have slowed, with no major shift in forecasts expected for the next three years.
During 2016, Cluttons expects 7,058 units to complete, followed by a further 10,299 deliveries in 2017. The number of handovers is expected to rise to 16,026 in 2018, before dipping back to 9,786 in 2019.
Richard Paul, head of residential valuations at Cluttons UAE said: “The number of villa and apartment handovers between now and 2018 is still quite evenly split. The overall stabilisation in the projected rate of handovers bodes well for the market as it hints at the potential for strong value rises once the planned residential handovers are absorbed by the market in two to three years’ time.
"This of course excludes smaller projects, which may increase the number of handovers slightly before 2018, although the impact of this is likely to be quite minimal.”
He added: “With the market still evidently working its way through a challenging period, with global economic conditions and affordability challenges, which are in part linked to the Federal Mortgage Caps, an immediate recovery in values appears unlikely, particularly as uncertainty around commodity prices, which have a direct impact on liquidity levels in the UAE’s banking system, remains in flux.”
Cluttons data also showed that Dubai’s rental market remains more resilient than the sales market, with less severe declines in rates. During 2015, rents across Dubai’s freehold residential areas declined by an average of 1.3 percent while Q1 2016 registered a further 2.7 percent drop.