Dubai property sales prices and rental rates begin to soften, according to Asteco's Q4 report

Areas affected the most include Free Zone developments, Sheikh Zayed Road, Bur Dubai and Deira where there is a large concentration of multinational companies. Office rentals in Jumeirah Lake Towers have dropped by 16% when compared to 2008's third quarter prices, while Dubai Media City and Deira have seen rentals decrease by 11% and 14% respectively.

Office sales, on the other hand, appear to be more resilient to the down-turn as the supply-demand gap to purchase commercial space is still wide owing to delayed delivery of projects at Business Bay, for example.

Andrew Chambers, Managing Director of Asteco, said:

"Given the current scenario, in comparison to other countries, Dubai still has great potential for further business development due to its favourable tax environment, its central location and stable government support."

Residential sale prices have also relaxed, according to Asteco's Q4 2008 research report. However, areas such as Dubai Investment Park, International City and Discovery Gardens have recorded no change in prices over the last quarter due to growing demand for affordable accommodation.

Downtown Burj Dubai prices have decreased from Dhs3,750 in Q3 to Dhs2,700 per sq.ft. in Q4 2008- recording a 28% change and Dubai Marina rates have contracted by 18% from Dhs2,200 in Q3 to Dhs1,800 per sq. ft in Q4 2008. "These projects were launched at significantly high price levels and in the last quarter, we have seen a correction in some secondary sale prices as investors and speculators are looking to re-sell at a lower rate depending on their liquidity needs," added Chambers.

"Ultimately, well planned and superior quality projects from reputed developers in prime locations will stand out and command competitive prices - as is seen in developed markets," added Chambers.

Residential rental rates for apartments and villas have also seen a leveling off in 2008 with average annual growth rates of four and 8% respectively. Average annual rental rates for studios, one, two and three-bedroom apartments in Dubai are at Dhs80,000, Dhs123,000, Dhs165,000 and Dhs243,000 respectively.

The temporary suspension of loan issuance from some banks has had a positive effect on the rental market as landlords are now relaxing payment terms allowing tenants to pay with up to 12 cheques instead of 2 to 3 cheques per year. At the same time, tougher lending criteria is also forcing developers to offer more flexible and end-user friendly financing schemes in an attempt to entice buyers and retain existing investors - bringing about the shift from a sellers market to a buyers market.

In addition, limited transactional activity in Dubai over the last two months and a decline in off-plan project sales has also contributed to what will be a certain shift from a speculator-driven property sector to an end-users market. "This shift could potentially lead to improved project planning which in turn will limit construction delays and assure timely delivery of quality developments," Chambers added.

To conclude, 2009 will see high quality and well located real estate commanding high value. The impact of the Metro and public transport will affect choice and enhance value of station block locations. There will also be great differential in sales values and rental rates to reflect quality, location and facilities as occupiers will have a wider choice.

Compiled and updated quarterly since 2006, Asteco's research reports include the survey and compilation of residential and commercial rental analysis for each emirate of the UAE.

Founded in Dubai in 1985, Asteco is the UAE's largest property services company. Its services include retail, commercial and residential sales and leasing; strategic consultancy; property management and marketing; feasibility studies and valuations; and research and investment.