Dubai residential values witness further decline in Q3 – Cluttons

Consultancy’s latest outlook predicts average 10% drop in values, rents by year end
Dubai residential values witness further decline in Q3 – Cluttons
By Sarah Townsend
Sun 20 Nov 2016 02:40 PM

Average residential values in Dubai slipped by a further 2.6 percent during the third quarter of 2016 but the rate of decline is expected to slow in 2017, according to new research.

The latest quarterly decline takes the annual rate of change to -7.4 percent, said real estate consultancy Cluttons, meaning that values are 26.7 percent below the last market high in the third quarter of 2008.

Cluttons’ Dubai Winter 2016/2017 Property Market outlook predicts that residential property values in the emirate will stabilise towards the end of next year, reaching a new base with positive triggers in the form of Dubai Expo 2020 and other infrastructure projects.

While some submarkets are almost bottoming out, transaction volumes are still weak and reflect general nervousness among investors, Cluttons said, adding that the wider issue of affordability “remains a stubborn thorn in the market’s side”.

Murray Strang, head of Cluttons Dubai, said: “Although our view of 2017 indicates positive signs to reverse the market’s fortunes, we are closely monitoring the level of residential supply coming to the market.

“With 34,000 units announced this year, it’s clear that project announcements are continuing at an unrestrained pace, despite what could be perceived to be challenging trading conditions.

“If supply continues to increase in the next 12 to 18 months, as the global economy remains unstable, it is likely to cause the current stability and projected bottoming out of the real estate market to unravel, with further price falls likely to follow suit.

“Demand and supply are almost in-sync currently, but this delicate balance can quickly be upset by a supply surge.”

Quarterly transaction volumes dropped by 21 percent during the third quarter, led by a 22 percent fall in apartment sales volumes quarter on quarter, according to the report. Meanwhile, the average price of a transacted villa has fallen by 28.1 percent since the start of the year to stand at AED3.9 million ($1.06 million).

The villa market overall continued to soften during the third quarter with values receding by 2.6 percent following a contraction of 2.5 percent in the third quarter, and taking the annualised rate of change to -7.8 percent.

However, this figure conceals the market’s varied performance during the third quarter. For example, villa values at high-end locations such as Hattan Villas at The Lakes and The Palm Jumeirah dropped by 11.9 percent and 11.1 percent respectively, while more affordable communities such as The Green Community and Jumeirah Village registered no change in values in the third quarter.

The variation in price decline was mainly due to the weak performance of the luxury segment of the market, according to Cluttons’ head of research Faisal Durrani. He said: “This is down to affordability issues that persist, along with a slowing in the rate of creation of senior level executive position. Over the last three years, villa priced have fallen by close to 10 percent.”

In the rental market, the rate of decline moderated to -1.5 percent in the third quarter, leaving average rents 8 percent down on this time last year.

Durrani said that overall, previous forecasts from Cluttons remain unchanged. “We expect residential values and rents to end the year 10 percent down on this time last year, with any bottoming out unlikely to materialise until next autumn at the earliest.

“The change in US leadership may well bring some surprises as well – this is something we are monitoring closely.”

Cluttons’ report said that ongoing stability in the emirate’s office market is expected to persist due to lack of supply in the most sought-after markets such as TECOM’s Dubai Internet City and Dubai Media City. Durrani said the emirate’s office market has been “the most resilient in the region despite somewhat flat conditions”.

Rents in areas such as TECOM and Dubai International Financial Centre (DIFC) are forecast to edge up by 3-5 percent over the coming year, according to Cluttons.

For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.