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Tue 6 Sep 2016 02:02 PM

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Dubai sees H1 projects slowdown amid property oversupply

Asteco says Abu Dhabi also witnesses slowdown, with rents, sales prices declining in first half of 2016

Dubai sees H1 projects slowdown amid property oversupply

Dubai developers slowed down the pace of project completions and handovers in the first half of 2016 due to the forecasted oversupply of residential properties in the market, according to a new report by Asteco.

The slowdown prompted a slight decrease of around 2 percent and 1 percent respectively on rental rates for apartments and villas in the emirate.

Asteco also said the cumulative effect of falling oil prices and the resulting cuts to government budgets over the last 18 months has been the catalyst for a slowdown in Abu Dhabi, where resulting job cuts in the last 6-8 months led to H1 residential rental rate declines of 3 percent on average, with high-end units down by 4 percent and a subdued sales market.

“We are seeing two unique pictures emerge for the residential sector in both emirates. What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money,” said John Stevens, managing director, Asteco.

“We are seeing signs of this in Abu Dhabi with a migration or downsizing mainly from high-end large units, to more affordable developments; which has led to a rise in vacancy rates for larger units and which could prompt an increase in rental rates for smaller units in more desirable buildings,” added Stevens. 

Asteco's report said Dubai added 2,000 new primarily mid-level and affordable apartments and 200 villas and townhouses in H1. 

It said apartment prices in most communities continued to be under pressure with an overall price reduction of 3 percent during H1, although prices are still 64 percent higher than 2011.

For the villa market, rates were broadly stable over the last six months with an average increase of 0.3 percent, Asteco added.

“We expect to see further marginal declines in values over the next six months as the market looks likely to bottom out by year end with, at most, a 5 percent decline. This could be offset by potential increased transaction volume as lower prices unlock demand and stimulate renewed interest from single-unit buyers for soon-to-be-completed buildings," said Stevens. 

“From a rentals perspective, demand for studio, one and affordable two-bedroom units is likely to remain strong, with a potential increase in rates in some areas as occupancy levels improve,” he added.

The report said limited supply of new H1 released supply in Abu Dhabi helped to limit any major reduction in rental rates with just 800 apartments added, resulting in an overall drop of 3 percent. This trend was replicated in the villa market, however at a reduced rate of just 1 percent.

Transaction levels in the capital were largely quiet with asking rates still relatively high in comparison to other emirates - nominal 2 percent decline recorded - despite owners putting units back onto the market and the ongoing lack of affordable units stymying prospective investors with limited budgets.

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