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Dubai real estate: which way will it go?

In this special report, Arabian Business analyses the state of the emirate's vast realty sector ahead of Cityscape and assesses when the market may start to shift gears.

Dubai real estate: which way will it go?

After almost two years of declining property prices, Dubai’s real estate industry is hoping a recovery is imminent. However, many people fear the slowdown could continue for a while longer as global economic uncertainty dents investor sentiment in the Gulf.

In July, most of the emirate’s biggest real estate consultancies recorded declining sales prices for the sixth consecutive quarter.

Average residential sale prices dipped by 2 percent in the second quarter of 2016 compared to the previous quarter, and 12 percent year-on-year, according to CBRE Middle East’s Q2 2016 market report, while average rental prices dipped by between 1 percent and 2 percent quarter-on-quarter.

The market is increasingly fragmented, with mid-market real estate proving to be the most resilient and luxury units suffering the steepest declines, with additional location-specific disparities, the report said.

However, across the board, CBRE said it expects to see a further 3-5 percent drop in sales rates in the second half of the year as low oil prices and tighter accommodation budgets hit demand.

Opinions vary as to where the market is at in the cycle. Dubai property tycoon Khalaf Ahmad Al Habtoor, chairman of Al Habtoor Group, last month predicted a rise in property prices in the emirate “in the coming months” as investors take renewed interest in the UAE’s favourable investment climate.

“I strongly believe in the UAE real estate market,” Al Habtoor, who is building a self-titled master development next to Business Bay, said in a statement to media. “We have the outstanding infrastructure, amenities, safety, stability, and a strategic location that will guarantee investors long-term returns.

“These are very exciting times ahead and we are expecting to see the price per square foot increase in the coming months for real estate in prime locations across the UAE.”

However, Core Savills CEO David Godchaux says he believes it could be another 12-24 months before the market starts to recover and that the days of double-digit growth are “gone for good”.

The UAE’s economy is likely to record its slowest growth since 2010 this year at about 2 percent, according to a Capital Economics bulletin published last month, while both Oxford Economics and the International Monetary Fund (IMF) revised the UAE’s growth outlook in April, moderating real gross domestic product (GDP) growth to 2.4 percent in 2016 from 3.9 percent in 2015.

The falling pound after Brexit has led many UK investors to hold back on making property purchases in the UAE, according to

The outlook is stable and the UAE is expected to be the best performing economy in the GCC over the next 12 months given its diversified economy. However, the macroeconomic headwinds it faces – debt issues in the European Union; tremors in China; the persistently low oil price with redundancies in oil and gas and related service sectors such as banking and finance; currency fluctuations; and the Brexit vote – are bound to have a subduing effect on real estate.

Some experts say these headwinds could stall recovery for at least another six months. However, they also claim market conditions are relatively stable and there has been a recent resurgence in investor interest, signalling that the market is bottoming out.

“In the past four to six months we’ve seen stabilisation of residential prices in Dubai, but that does not mean recovery,” Godchaux says.

“It does not mean a double dip either, and we are fairly certain we won’t see further softening of prices because we have noticed some forming underlying demand and clients who have held back from investing in the past year or two are saying they are interested in re-entering. This is a clear sign the market is bottoming out.”

Another sign, says Godchaux, is a growing gap between the seller’s asking price and what the buyer is willing to pay. “We are seeing sellers wanting 5 percent, 10 percent, 15 percent more than the market value, while buyers are wanting to pay 5 percent, 10 percent, 15 percent lower than market value. This indicates that the property is not properly priced – a key characteristic of a bottoming out market.”

However, it will take time to regain momentum, he says. “The Dubai property market is more mature than it was and it will be another six to 12 months before prices depreciate in line with demand and the market begins to recover. And we will never see again the double digit growth of yesterday – but that is a good thing.”

Chestertons UAE managing director Declan McNaughton also says the residential market has bottomed out but, unlike Godchaux, he believes it is already on the up. He claims the volume of sales transactions at Chestertons has risen by 20 percent in the past six weeks, and predicts sales volumes for the third quarter will rise by as much as 30 percent compared to the previous quarter.

“We feel there is a sentiment of change in the air,” he says. “The market has bottomed out and we think we’ve seen all the blood that is going to be shed. Investors are in town with money to spend but the offer has to be compelling. For example, a good payment plan [for off-plan sales], high quality piece of stock, desirable location.”

JLL Middle East and North Africa (MENA)’s Real Estate Market Overview Q2 2016 report also argues that both the residential sales and rental market have bottomed out. Citing figures from analyst Reidin, the report said the general sales and rental index “remained largely unchanged over the second quarter, suggesting the residential market is currently at a cyclical trough, having softened by about 15 percent since its peak in mid-2014.”

JLL head of research Craig Plumb says: “The residential sector is closest to the bottom [of all real estate sectors] and is currently relatively stable, ahead of a likely improvement in market conditions from 2017 onwards.


“The residential market has now declined around 15 percent since prices peaked in mid-2014. The level of decline has eased in recent months and transaction levels have also stabilised.

“A little further fall in prices is expected, with the market likely to recover again during 2017 providing the macroeconomic and geopolitical situation does not provide any negative external shocks.”

The rental sector has remained more robust than the sales market, reflecting continued strength in demand, adds Plumb. “This has increased the level of rental yield available to investors – one factor likely to contribute to the recovery of the sales market in 2017.” 

In terms of rental and sales rates, the residential market is somewhat fragmented and this is expected to continue, Godchaux says. Sales prices in areas such as The Springs, The Meadows and Emirates Hills are “behind the curve” compared to where they were at the last peak in 2014 but midmarket areas such as Jumeirah Village Circle (JVC) have recovered at a faster rate and good quality product in high demand areas such as Dubai International Financial Centre (DIFC), Dubai Downtown and Dubai Marina “always goes very quickly”.

Core Savills’ Dubai Investment Outlook H1 2016 stated: “The realisation that the market is ‘bottoming’ seems to have stimulated interest from investors and end-users, who have been waiting for several years for ‘attractive deals’, prompting renewed enquiries for better-value-for-money products, especially in the prime residential segment.”

The company’s Established Prime Residential Markets in Dubai report, published in June, examines locations such as Al Barari, Emirates Hills and Palm Jumeirah. It says: “Aided by the current softened sales market, potential capital appreciation and higher long-term yields, Dubai’s prime residential real estate is extremely good value by global levels.

“Prime residential prices in Dubai are 60 percent below prime New York, 75 percent below prime London and a staggering 85 percent below prime Hong Kong.”

The report put average sales prices for apartments on The Palm Jumeirah at about $435 per square foot (sq ft) in the second quarter of 2016 and $680 per sq ft for villas. Prices in upmarket areas of Dubai have typically fallen by at least 5 percent quarter-on-quarter, while in the midmarket sector, average price per sq ft fell less notably – for example by 3 percent in each of Jumeirah Village Circle (JVC), Jumeirah Beach Residence (JBR) and Al Barsha to $236, $431 and $285 respectively, according to Dubizzle’s Q2 UAE Property Report.

Average gross rental yields for villas in prime Dubai are currently running at 5.7 percent, while for apartments they are 7.6 percent, said Core Savills. Meanwhile research published in July by MPM Properties, the real estate subsidiary of Abu Dhabi Islamic Bank, showed The Palm Jumeirah was the most expensive place to rent an apartment in Dubai in the second quarter of 2016, with per month costs ranging from $24 sq ft for a studio to $55 per sq ft for a three-bedroom apartment.

International City was the cheapest area, MPM’s research said, ranging from $10 per sq ft to $19 sq ft for a two-bedroom apartment during the same period. Average rents fell in all 11 Dubai locations analysed by MPM, with the steepest decline recorded in Business Bay, where year-on-year rents dropped by 5.93 percent.


Despite some analysts’ positive outlooks, others believe there is more softening to come. Cluttons this week publishes its 2016 UAE Market Update, which examines real estate performance across the emirates in the first six months of this year. The report concludes that the market has not yet bottomed out and rates are likely to keeping falling until 2017.

It says that overall residential values in Dubai decreased by 2.4 percent in the second quarter of 2016, taking the year-on-year decline to 5.2 percent. Average residential values stand at $375 per sq ft, almost 25 percent below the last market peak of the third quarter of 2008, while the total number of residential transactions in the first six months of 2016 fell 30 percent from the same period in 2015, to 5,685 deals. “No submarkets registered any growth in average capital values in the six months to the end of June, suggesting that the gradual chipping of values is likely to persist.”

Faisal Durrani, partner and head of research at Cluttons, says the only two areas where values remained flat, rather than declining, were International City and Downtown Dubai, suggesting that location, affordability and quality of stock are the most important factors for investors. He says Cluttons forecasts apartment values will fall by a further 5 percent by the end of the year and villas by 7 percent - “there is more softening to come, I don’t think we’re there yet”.

Increasing levels of supply are contributing to the flat market. It is estimated that around 48,000 new residential units could enter the Dubai market between 2016 and 2018 – more than 5,000 units have been announced so far this year – this is broadly comparable to the five-year average supply, according to CBRE’s Q2 2016 Marketview study. Much of the new housing is to be delivered in secondary and tertiary locations such as Dubailand, Jumeirah Village, Business Bay and Dubai Silicon Oasis, and is aimed at middle-income buyers.

However, Core Savills says that only 50 percent of total expected stock was delivered in 2015, and only 35 percent is expected to come on to the market in 2016. In the first half of this year only about 3,000 new properties were delivered, with villas amounting to just under 20 percent of the total.

“Against this backdrop of contraction in deliveries, our conservative estimate of new supply for the remainder of the year hovers around 5,500 units,” the consultancy says. “With the new metro extension connecting the main red line to the Expo 2020 site, more transit-oriented development is expected to arrive in the areas of Dubai Investment Park (DIP), Al Furjan and Jumeirah Village in the next few years.

“The current supply scenario echoes [Core Savills’] earlier forecasts of a perceived shortage in prime residential, which is keeping the prices across prime submarkets relatively stable.”

Prominent villa communities expected to arrive this year are Dubai Properties’ Mudon Villas, Nakheel’s Jumeirah Park Nova and Azure Residences on The Palm Jumeirah, also by Nakheel. On the apartment side, Emaar’s Downtown Views and the residences at Meydan’s Dubai Water Canal development are expected to come to fruition by 2017.

The UK’s Brexit vote and the subsequent decline in the value of the pound is starting to have an impact on the market, experts say. said in a statement last week it had experienced an 8 percent drop in traffic from the UK immediately after the vote in June, but that this had started to pick up again by the end of August. 

The website added that several UK owners with property for sale in Dubai had reduced their asking prices in recent weeks, taking advantage of the weak pound against the dollar-pegged dirham. On the other hand, a number of UK investors that had expressed interest in buying here now appear to be holding back.


Brexit is just one factor in an anticipated shift in market dynamics over the coming months, but the indications are that Dubai’s residential property sector is rounding the bend of the tunnel but is yet to emerge into the light. As Mat Green, head of research at CBRE MENA, says: “There is positive interest from domestic developers but this is not translating to the international market.

“Recovery in the residential sector is unlikely to be seen until mid-2017, with up-and-coming affordable locations outperforming prime ones. Until then, the general trend will be more downward pressure on prices.”


No significant change is expected in Dubai’s office real estate sector over the next 12 months. “It is very much a two-tier market”, says CBRE MENA head of research Mat Green. He says there remains high demand among large corporates for either free zone or Department of Economic Development-licenced office space, for example in DIFC, Sheikh Zayed Road, Dubai Downtown, Tecom, Dubai Media City and Dubai Internet City. In these locations, rental prices have held up despite the slower economy because of the shortage of good quality Grade ‘A’ stock. Any new office building that comes on to the market is filled quickly. For example, technology giant Huawei recently took 92,000 square feet of space for its new regional headquarters in Dubai Internet City.

Meanwhile, in secondary locations such as Jumeirah Lakes Towers (JLT) and Business Bay, supply outweighs demand as the stock is a lower quality, floorplates are less efficient and most of the buildings are in less desirable fragmented ownership. Green says Grade ‘B’ office rents dropped by about 5 percent year-on-year in the first half of 2016.

On the other hand, average Grade A rents rose by 3 percent year-on-year in the second quarter of 2016 to about $523 per square metre, according to JLL’s latest market overview, and vacancy rates dropped from 23 percent to 16 percent year-on-year.



The Dubai government is taking steps to boost the industrial and manufacturing industries, for example by building the huge Dubai South development near Al Maktoum International Airport. Despite this, investment in industrial real estate has been slow and there is substantial unmet demand for good quality stock, experts say.

Core Savills CEO David Godchaux says: “In Dubai there is literally no new ready-to-release Grade A industrial stock – logistics warehouses with a proper loading dock, flexible space, enough room for trucks to come in, reload and so on – available to lease and it’s a worry.

Because of the supply shortage, many occupiers opt for build-to-suit, while established free zones of Al Quoz and Dubai Investment Park remain buoyant because of lack of available space, says Cluttons’ partner and head of research Faisal Durrani. In Al Quoz, prices have held up at between $12 and $16 per sq ft due to its central location, although because of its onshore status, leases must be renewed every year; international occupiers would prefer a longer tenure, according to Durrani.

The market is not expected to undergo significant change in the coming 12 months.


Retail rents remain close to their cyclical peak and no major development is expected to disrupt the market in the short term, experts say. Nakheel’s under-construction mall on The Palm Jumeirah is half the size of Mall of the Emirates and a third the size of Dubai Mall. Other schemes under development or recently completed are mostly community shopping centres and extensions to existing malls, such as the third phase of Ibn Battuta Mall and a community retail centre in International City. In total, 30,000 square metres of retail space has been added to the market in 2016 to date and an additional 150,000 sq m is expected by the end of the year, according to JLL.

Head of research Craig Plumb, says: “While the overall market is not as strong as it was in 2014-2015, owners have been able to achieve rental growth in the most popular malls, while elsewhere the balance is moving in favour of tenants, who are able to extract more flexible leasing terms from their landlords.

“While the market is likely to soften further in 2017 given high levels of new supply, no major change in base rentals is forecast.”


The opening of new hotels such as W Hotel Dubai in Al Habtoor City, Rove in Downtown Dubai and Wyndham Dubai Marina has brought total supply to about 72,500 rooms, according to JLL’s second quarter 2016 market update. Occupancy rates remained flat at around 83 percent year-on-year but average daily rate declined by 13 percent to $217 as of May 2016, as operators respond to more competitive market conditions.

With a further 12,000 new keys due to enter the market during 2017, a further softening in average room rates can be expected, says JLL’s Craig Plumb. Still, despite significant levels of new supply and a slowdown in the growth of tourist arrivals, Dubai remains one of the most attractive hotel markets globally, he adds.

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Japaccci 3 years ago

If the owners bring the rental rates down by 20% things will improve !!!

Expat 3 years ago

Perhaps owners cannot afford to bring down their rental price due to the constant increase in mortgage costs each year...

JRH 3 years ago

Expat - then more and more their properties will stand empty.

A friend of mine came to renegotiate his rent on a villa in Arabian Ranches back in May. He quite rightly asked for a reduction given the market conditions but the landlord refused to budge. He did the right thing and took the pain of moving and got a similar villa for a lot less.

Meanwhile his previous place stood empty for 5 months before being rented for less than my friend had offered originally.

I think in the past many were able to absorb this kind of loss in a misguided attempt to keep the market at a certain level but given there is significant oversupply (particularly in the higher end of the market) people can choose from many other cheaper options and thus is makes sense to bear the cost of moving.

Telcoguy 3 years ago

@JRH leaving property empty rather and renting at lower price has been a trademark of Dubai real estate, I think it has to do more with "losing face" than supporting the market at least for owners of small number of units.
I am curious to see how things will play in places like Doha, where the number of expats has gone down quite abruptly, or even in Abu Dhabi. None of these places is used to overcapacity and this is/will be a first.

Having said that, I suspect many owners are now trapped with very high fixed costs (mortgage plus maintenance fees) and must be suffering a lot of pressure and find themselves with very limited options.
Due diligence and all that we discussed back in 2008-9.

RAK 3 years ago

JRH - can you share which community your friend moved to? Someone looking to move to Dubai and considering the Ranches...

JRH 3 years ago

They're down across the board in AR. All depends on your friends budget of course and what he/she is looking for.

c patel 3 years ago

What about the VAT, is that going to be applied to property purchases and rental income.

Bill 3 years ago

well the mortgage rates are going to go up even more as the US will increase rates so the central bank here will also have to increase proportionately. The banks will increase their spreads to make up for the SME losses they are carrying . Interesting times ahead

Telcoguy 3 years ago

i can only discuss what has been done in other places:
-VAT is only applied to new products, therefore new property will pay VAT, but then VAT should replace a number of previous taxes
-when reselling property you usually have a special tax but no VAT
-rental for commercial reasons must pay taxes, but keep in mind that a properly functioning business should charge more VAT than pays, that means this has no impact
-housing rental is typically exempt from VAT

Now if this is how things will work out on Dubai you will need to wait and see.

Fentoni 3 years ago

Hello Bill, the central bank don't set the rates, they simply report the EIBOR rate. EIBOR (Emirates Inter-Bank Offer Rate) is the average cost of borrowing between 12 selected banks over a set period of time e.g 3 month, 6 month, 12 months. The 12 banks that make up the index are;
Abu Dhabi Commercial Bank, Barclays Bank, Citi Bank, Commercial Bank Of Dubai, EmiratesNBD, First Gulf Bank, HSBC Bank Middle East, MashreqBank, National Bank Of Abu Dhabi, RAKBANK, Standard Chartered Bank and Union National Bank. Central bank then removes the two highest and two lowest banks and the EIBOR rate is set based on an average of the middle 8 banks. To set their mortgage rates most banks use a fixed margin plus either 3 month, 6 month or 12 month EIBOR, others like SCB use their own internal bank rate which may or may not be influenced by EIBOR.