By Sarah Townsend
Q1 rental yields topped 7.5 percent in some secondary locations, says Chesterton MENA
The value of residential real estate transactions in Dubai jumped 11 percent quarter-on-quarter in the first three months of this year to total AED27 billion ($7.3 billion), according to new research.
Chesterton MENA’s first-quarter 2016 market update also found that the value of total office transactions in the emirate dropped 7 percent on the previous quarter, to reach AED778 million ($211 million).
Rental yields topped 7.5 percent in secondary locations across Dubai in the first quarter even while rental performance across the emirate in general remained flat, the report showed.
Chestertons recorded a 7.5 percent gross yield for apartments and 4.7 percent for villas in the city’s most popular “affordably priced” developments.
However, on average across Dubai there was a 0.5 percent decrease in apartment rental rates during the first quarter of 2016, with Downtown Dubai recording the highest drop of approximately 5 percent.
For villas, The Springs registered the highest investor yield at approximately 6.4 percent in the first quarter of 2016, while apartment yields stood at 7.5 percent and studios recording the highest yield at 8.4 percent, according to the report.
The average sales price per square foot for residential units in the city stood at AED1,221 ($332) in the first quarter of 2016 with available supply of 461,000 homes, according to the report. Average apartment sales prices recorded a negligible 0.7 percent decline.
Declan McNaughton, managing director UAE at Chestertons MENA, said: “Overall, market yields have retained some degree of attraction as we saw residential prices drop in the first three months of the year, with apartments proving to be the most successful option in terms of yield.
“And it is the secondary locations that are once again offering the highest yield, ranging from 7.7 percent at Dubai Silicon Oasis to 9.5 percent and 9.6 percent respectively at Discovery Gardens and International City.
“However, despite ongoing sustained demand for affordable rental units, as end users look to reduce the cost of living by relocating to secondary communities, the villa segment still provided an overall average yield of 4.7 percent, which is encouraging for investors in it for the medium to long term.”
McNaughton added: “The outlook is less than rosy, however, with rental demand expected to be weak at current prices as the economic situation could adversely affect the disposable income levels of residents and we expect to see further correction of rental rates in the high-end apartment and villa segment as the year progresses.”
The lower the prices in the residential sector the more investors you will attract, on the basis that the probability of making a profit in the longer term increases.
Of course this model, while advantageous in terms of transaction level statistics, will drive prices down further. Until of course the investment community encounters borrowing constraints, reaches its maximum prepared exposure in a single market or moves on to other markets.
For example Spain with its secondary market attracting so much attention at the moment. Well maintained, pre-owned golf-side townhouses, 3 beds 3 baths AED 540,000. Spanish banks also have bargain foreclosures galore. Equally important is a moderate cost of living.
Dubai prices are likely to decline further for a while yet, the rate at which this takes place may be changeable, but the summer is almost upon us which will put the brakes on the transaction numbers.