Despite lower than anticipated handover volumes, there were steady rental rate declines across all asset classes in Dubai in 2018, according to a Q4 real estate report from property services company Asteco.
In the report, Asteco said it recorded the delivery of 15,000 residential units over the course of the year, of which 12,000 were apartments and 2,750 were villas.
Additionally, office supply volumes picked up towards the end of the year, with an additional 2.86 million square feet in total. According to Asteco, the pace of new projects eased over the course of the year as developers “adopted a more cautious approach” in response to lower demand and growing supply.
Despite the overall handover volume being below expectations, Asteco said additional supply “was still significant” and resulted in rental declines averaging 10 percent for apartments, 10 percent for villas, and 5 percent for offices, although some areas “significantly” under or outperformed.
Sales prices across all asset classes were found to have declined by an average of 13 percent.
“Emphasis continued to be unit price points, as opposed to the rate per square feet,” the report notes. “The steady decline in sales prices for completed projects has improved affordability and hence opened the market to a wider investor pool and facilitated a rise in end-users and first-time buyers.”
According to Asteco, construction activity during 2019 for committed projects is expected to continue unabated, despite a slowdown in new project launches, largely due to construction-linked and post-completion payment plans, which ensure that payments are linked to construction milestones.
The additional supply, combined with handovers previously scheduled for 2018, will see an additional 30,000 residential units and 3.6 million sq. ft of office space brought to the market.
While Asteco predicts that the additional supply will result in continued pressure on rents, the rate of decline is expected towards the end of 2019. Generally low rents are also expected to help tenants move up in terms of size, quality and location, the report added.
Sales prices are also expected to continue to fall in 2019.
“Although the focus will remain on affordable developments, transaction volumes are anticipated to rise as residents take a longer-term view on living in Dubai,” the report added.
“While market conditions mean that it is unlikely that LTV [loan to value] ratios will change, we believe that developers, banks and other financial institutions will become more creative and introduce solutions to bypass the high down payment required to avail a mortgage.”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.
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