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Fri 27 Feb 2015 01:54 AM

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Dubai rents set for 'significant' drop from 2016, says Asteco

New report predicts softening in sales prices and rents from next year as new real estate projects reach the market

Dubai rents set for 'significant' drop from 2016, says Asteco

Increased supply of apartments and villas in Dubai during 2015 could result in a softening of sales prices and rents, according to a new report by Asteco.

Its Dubai Property Review 2014 Highlights & 2015 Outlook report said a further 12,000 apartments and 2,000 villas are set to come to market this year, underscoring a predicted softening of sales activity in 2015 following declining sales and rental return in the second half of 2014.

A more significant decline in rents could be seen from 2016 onwards as large numbers of real estate projects are completed, Asteco's report noted.

Asteco said rental rates rose across all three properties types in Dubai last year with apartments showing average year-on-year growth of 7 percent, 4 percent for villas and 12 percent for offices.

It added that the impact of tenants choosing to remain in existing accommodation rather than relocate resulted in a slowdown in activity.

The citywide annual average for a two-bedroom apartment in Dubai was AED122,000 at the end of the year, with an average 6 percent year-on-year rental rate increase recorded in Q4 2014, Asteco said.

"A further 12,000 apartments will be added to the city's existing inventory in 2015 as well as over 2,000 villas. This is good news for tenants across the emirate, and a more tempered rental environment is especially welcome when you consider that since 2011 apartment rents have increased by 65 percent, and villas by 55 peercent," said John Stevens, managing director, Asteco.

Villa rental rates are anticipated to remain relatively stable in the most desirable areas, with the report flagging marginal declines in less desirable areas, he said.

"Looking beyond this year, a more significant drop in rental rates could be on the cards from 2016 onwards as the large number of projects announced in 2013/14 (an estimated 12,000 to 14,000 villa units) are completed," said Stevens.

Apartment rents increased by 65 percent since 2011 but are still 25 percent lower than in 2008 with villa rates still 20 percent lower than in Q4 2008.

The report said 2014 as a year of stabilisation with sales price increases of 4 percent, 1 percent and 9 percent respectively for apartments, villas and offices.

In a year of two halves, Dubai's residential sales market recorded moderate growth in the first half of the year, with significant slowdown in market activity and sales transactions in H2 2014.

"We anticipate that the overall sales prices of units in sought-after communities are likely to see relative stability, while secondary communities, with limited facilities and amenities will be faced with declining values," said Stevens.

Underscoring reduced risk appetite, new lending regulations and fees making the purchase process more expensive, the market saw a 25 percent reduction in villa and apartment transactions in 2014 against 2013 figures. Indeed, transactions levels fell by 40 percent year-on-year in Q4 2014 alone.

Off plan sales also slowed with the added burden of newly completed products offering buyers an increasing choice of investment opportunities, Asteco said.

According to its report, sales prices for apartments ended 2014 showing a 7 percent increase compared with Q4 2013 while apartment sales prices were 6 percent higher.

With current sales rates stabilising and rents witnessing potential increases in the medium term, office yields are expected to improve in 2015, Asteco added.

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Sam 4 years ago

I thought this fall in rent/buy prices will be after expo. Do you think it is already the right time to buy in Dubai or wait after expo?

NRV 4 years ago

Rent may be decreasing in posh area like JLT, Marina, Plam etc.... But middle class area like Riqqa, Karama, Qusais, Al Nahda everywhere it is is increased.

These reports are baseless...

Red Snappa 4 years ago

Personally I think there is rather too much growth attributed to the Expo, isn't it only a 6 month event after all.

I would say make sure you have your 25 per cent deposit saved if you're looking for a mortgage Sam, plus all the contingency for living while you are still renting as well as the purchase fees to RERA. Think asking prices are still high, they will go lower, purchase prices per square foot have definitely fallen by a hundred AED or so, as opposed to rents. Could be some good bargains at Dubai Marina post Torch fire.

Uzair Hassan 4 years ago

I don't see the logic they have attempted to put together. In a vacuum, the number of properties coming into the market seems high and would surely create oversupply and rents / prices should come down. But in real world scenarios, factoring in the number of people moving into Dubai plus the type of villas actually coming into the market being high end, the impact would be nowhere close to what they are stating. Its simple. Palm properties coming into the market cannot impact Springs villa prices and vice versa. It was the same rhetoric used earlier by developers and agents earlier and it simply did not happen. I forsee an incline and not a decline. Estimated influx of people moving into Dubai alone is significantly higher then all the developments in the city put together. Simple math.

Jalal Ahmed 4 years ago

With all my due respect to all others opinions no one can predict future. It is well said built it and they will come . Please do not hold me for this it is my personal thinking I am feeling that the business momentum is building locally and internationally due to various nationals and international current political situations and developments and Dubai seems to be benefitting & if I am correct and nothing major disasters happens then there will be an upward trend from coming months and if someone is cash rich then in my opinion it is the right time to buy.