Dubai apartment prices to come under renewed pressure

'We are now beginning the last quarter of what has been for many an extremely painful and frustrating year,' says Heather Wipperman-Amiji, CEO of Investment Boutique. 'The speed and severity with which our local markets responded to the mushrooming 'subprime lending crisis' caught everyone off guard in one respect or another.'

Property sales

Investor confidence is still a major factor in the stagnation in many areas of the emirate's property market, and the sector is still waiting for a general uplift in sentiment, and impetus in sales, Investment Boutique's (IB) Q3 Market Pulse study notes.

'Although prices for off plan property have declined substantially in the last nine months, trading has come to a standstill,' IB's report states. 'The primary cause of this trend is the lack of confidence among investors who do not want to take risks due to uncertainty around infrastructure, developer's financial resources and overall market take-up.

'When the economy begins to stabilise, near complete properties are expected to trade once again and an increase in activity in this segment may be an indication that buyer confidence has re-entered the market. However, these will need to be offered at a substantial discount to completed property.'

Average prices

Villa prices are now down to Q3 2006 levels on average - Palm Jumeirah prices are down 57%, and Arabian Ranches are down 49% - while apartments are trading at Q4 2007 levels. Landmark Advisory (LA) figures put the average fall for apartment prices at 38%, following a further 3% dip in Q3, while villa prices are 39% lower than at the peak, despite rising by 8% in Q3. The average gross yield for apartments is 9%, compared to 6% for villas.

Transactional volumes are showing a preference for smaller units; one bedroom apartments accounted for 30% of 2009 sales, two bedrooms 24% and villas 14%. Landmark Advisory estimates that villa prices are likely to remain stable in the short term, before edging up gradually during 2010, while apartment prices are expected to fall further over the short to medium term as pressure from new units coming to market takes its toll.

Leasing rates

Average rents for villas in Dubai increased by 6% over Q3, consistent with sales, according to Landmark. This was driven by demand for three and four bedroom properties, which saw average rises of 14%, five bed homes remained steady, while rents for two bedroom villas fell by 13.6%. Apartment rents fell by 17%, with LA forecasts predicting that these are likely to keep falling 'due to weak supply fundamentals'.

Leasing rates for three bedroom flats are down 34% from the peaks, while rentals for three bedroom villas have gone down by 45%.