Kershaw Leonard has released its annual Cost of Living report, the sixth installment of the paper. After comparing the UAE market in mid-2008 to the California gold rush of the 1800s, the Dubai-based recruitment and HR consultancy has said that the market in 2009 now resembles 'survival of the fittest'. With housing costs having spiralled in 2008, the study looks at what the decline in prices has meant for the UAE's emirates.
'Out of all the cities of the UAE, it is within Dubai that some of the biggest changes have taken place,' the report says.
'Yet, some of the most interesting observations of this year's report are the increasing differences between Dubai and Abu Dhabi, and what some see as an increasing divide between the two cities.'
The report notes that inflation, fuelled primarily by the ever-increasing property bubble, reached over 12% - according to official figures - at the market's peak in 2008, although the 2008 report suggested the actual figure to be nearer 20%. One effect of the turnaround in the market has been to lower these figures.
The turnaround has been most strongly felt in the real estate sector. With mushrooming rental rates across Dubai overheating the market and pushing people to consider buying their property, the steep decline in prices post Q3 2008 has had a comprehensive effect on the city.
Rental slides
Citing comparison tables of different unit types and locations from April 2008, September 2008, April's Rera index and September 2009, the report notes that: 'The rent on a studio apartment in Dubai Marina might now be 53% less than in September 2008, and a two-bedroom apartment in International City 48% less. In terms of villas, the rent on a three-bedroom in the Springs is around 44% less than one might have paid one year ago, and a five-bedroom on Jumeirah Palm, 22% less.'
Conversely Abu Dhabi had continued to witness increases: 'Rental prices are not only on the increase from last September, but in some cases are considerably higher - 36% for a studio flat on the Airport Road, or 20% for a one-bedroom apartment on Muroor Road, for example. This is not discounting the fact that, unlike Dubai, there is still significant undersupply in the capital.'
The undersupply is highlighted by the inclusion of figures showing that, while 362,000 units will be needed in Abu Dhabi in 2010, only 340,000 will be available. Dubai, on the other hand, will see an oversupply of approximately 30,000 units in 2010. This oversupply has affected purchase prices accordingly, with the cost of a studio in Old Town falling by 36.8% compared to last September, and the price of a three-bedroom villa, both in the Springs and on the Palm dropping by approximately 50%.
Looking ahead
Looking ahead, the report finds that, although a reported $582bn worth of real estate and infrastructure projects have been put on hold or cancelled in Dubai, a further $700bn worth are ongoing throughout the UAE.
Citing Proleads, the study finds that: '"Compared to most European countries, that's a lot of projects." In the longer-term half-finished projects will have to be completed - although many flagship projects, such as Dubai Waterfront which is currently on hold, may be considerably scaled down.'
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