Dubai property market still weighed down by new supply

The good news for the Dubai property market is that certain parts of the emirate are beginning to recover, with some areas seeing their first price increases since 2008, Jones Lang Lasalle said in its latest report.

Prices for luxury villas in projects as Palm Jumeirah and Arabian Ranches rose 3% in the second quarter, as ease of lending and the Arab Spring contributed to stronger demand for villas in well established communities, the property consultancy said.

However, JLL cautioned that overall sales activity remains minimal, and several factors will continue to drag on the market in the months ahead, including a large influx of new supply. The report said about 2,000 homes were completed in the emirate in the second quarter, and another 18,000 will be ready for occupancy by the fourth quarter of 2011, adding that the total residential stock will increase to around 322,000 homes.

"The residential sector is approaching the cycle trough and select pockets of stability are emerging, but, on average, sale prices and rents will continue to decline," said Jesse Downs, Head of Management Consulting, Jones Lang LaSalle.

A similar finding was revealed in a new report by property management company Asteco, which said there was 'little movement" in villa sales in Dubai in the second quarter, with prices falling 3% across the emirate.

However, Asteco sees the relatively slight declines in prices as a sign that the market is stabilising. "End-users are now beginning to drive the Dubai market as reduced sales prices and better financing options appeal to residents who are taking a longer-term view of living in Dubai," the report said.

Asteco also views other recent developments in the market as potential harbingers of a turnaround. "Over the last three months we have seen some positive developments such as the extension of the property visa period from six months to three years and the implementation of the International System of Units, which will bring uniformity of scale to the market," said Elaine Jones, CEO, Asteco Property Management.

"Both are steps in the right direction and represent the government's commitment to increasing transparency and confidence in the market, which will encourage investment," she added.

Jones Lang says the full impact of the new property visa law in Dubai is difficult to assess until more details are made available. However, the consultancy believes the extension will be positive in the long term.

"The announcement of the three year federally backed resident visa will assuage investor and homeowner concerns as well as improve overall market confidence, but it will take time to directly and significantly impact residential demand," said Jesse Downs.

Rental rates continue to fall

On the rental side, Asteco said apartment rental rates dropped by 3% in Dubai in the second quarter, but found there was little or no change in the rental rates for villas.

The report said apartment rents softened due to continuous handovers causing a downward effect on rentals, with rates in Dubai Marina and Jumeirah Lakes Towers declining by 3% and 1% respectively.

One interesting trend mentioned in the Asteco report was the migration of tenants from two-or three-bedroom apartments to townhouses or small villas and should this trend continue, landlords will have to adjust rates and terms for larger apartments to retain or attract potential tenants.

Villa rentals fared better and were relatively stable over the last three months, Asteco added, noting that new villa developments along Emirates Road are gaining in popularity, with large units, competitive pricing and an improving road network.

Looking ahead, rental rates are expected to decrease slightly in the short-to-medium term consistent with the delivery of new villa developments such as Jumeirah Park, which is expected to be partially handed over by the end of 2011.