Rents across Dubai are expected to see further softening in 2019, particularly in areas with handovers of long overdue new deliveries, according to a new report.
Real estate consultancy ValuStrat said rental declines next year will be most common in located within the E311 corridor including projects such as Living Legends, Dubailand, The Villages, Dubai South, Damac Hills, Dubailand, Hayat Townhouses, Town Square, and Mudon Villas, Dubailand.
The report also said that prime residential areas in Dubai, which saw relative resilience this year, may continue to see some improvement in 2019.
It added that capital values for some high-yielding mid-affordable areas may experience downward pressures as a result of burgeoning supply, extending the prevailing buyer's market.
ValuStrat said that by the end of 2019 the population of Dubai is expected to reach 3.4 million, and assuming all projects are delivered on time, the number of residential units will reach 600,000, office supply 9.5 million sq m and Dubai could have 138,000 hotel rooms and hotel apartments.
The report said one of the key trends of the Dubai residential real estate market in 2018 was the reduction of off-plan launches when compared to the previous year.
Nevertheless, established locations such as Downtown Dubai and Business Bay still saw 85 percent of investments being off-plan.
"This came as no surprise, as off-plan projects with competitive payment plans were preferred by purchasers as the cost of bank borrowing saw four increases during 2018," ValuStrat said.
It added that based on the ValuStrat Price Index – Residential (VPI), overall residential capital values for freehold properties declined 11 percent annually and are 22 percent below their 2014 peaks.
The highest annual declines of more than 15 percent were seen in Business Bay, International City and Jumeirah Islands, while locations with less than 6 percent declines were villas in Palm Jumeirah, Emirates Hills and Al Furjan.
Capital values for villas on Palm Jumeirah proved the most resilient when compared to citywide trends.
The report said falling residential rents are one reason for softening capital values – as investors faced lower yields on foot of deteriorating leasing rates. Asking rents were down 8.6 percent on an annual basis, as many landlords worked to maintain occupancy levels with rent reductions and easier payment plans.
It added: "2018 can be described as a home buyer’s market, driven mainly by off-plan developers offering competitive payment plans, many of which spanned beyond promised handover dates. As to who the buyers were, our research shows there was a shift towards domestic end-users rather than investors. These end-users earn locally and are less impacted by international currency fluctuations.
"Developers have increasingly moved into home financing, offering innovative self-funded payment plans directly to their purchasers, outside of the traditional mortgage market. Whilst such schemes have likely opened-up home ownership in Dubai to a wider market, less stringent credit checks as compared to traditional bank mortgage applications, may represent some downside risk for future payment defaults.
"Such a scenario could possibly expose some developers who are dependent upon stage payments to fund project construction."
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