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Dubai real estate market equilibrium possible in 3-5 years: Report

Dubai’s property pipeline is expected to exert continued pressure on the residential market with an additional 10,000 units set to be delivered this year and a further 70,000 before Expo 2020 – according to research from leading international real estate services firm, Chestertons, latest Observer: Dubai Market Report Q3 2018.

 Despite several positive initiatives being announced by the UAE Government, including the newly announced retirement visa, company ownership and 10-year residency, apartment and villa rental rates have declined 4% and 3% respectively while sales prices for both property classes declined by 6%, with the trend expected to continue into 2019.

“Without a significant decline in construction activity, a boost in population and short-term economic stimulus, it is unlikely the residential market will have any respite for the remainder of the year, resulting in  an expected supply/demand equilibrium scenario in the next 3-5 years, due to the forecasted property pipeline,” said Ivana Gazivoda Vucinic, Head of Consulting and Valuations and Advisory Operations, Chestertons MENA.

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In the rental market, the biggest adjustments were seen in smaller units, a consequence of additional apartment supply and greater affordability in larger units resulting in a Q-on-Q studio decline of 6%. Studio apartments in DIFC and Downtown Dubai both recorded declines of 11%, falling to AED67,000 per year and for the same period, Discovery Gardens notched the greatest fall, a decrease of 13% for a studio, which can now be leased for AED35,000 per annum.

In the villa rental market, the highest Q-on-Q declines for 3-bedroom units were witnessed on Palm Jumeirah (13%), Jumeirah Islands (6%) and The Meadows (5%), with three-bedroom units now renting at AED302,000, AED235,000 and AED193,000 respectively. Elsewhere, Jumeirah Golf Estates and The Lakes remained flat at AED245,000 and AED183,000, while Arabian Ranches, The Springs and Victory Heights declined by 1% and are now available annually for AED167,000, AED153,000, and AED147,000 respectively.

“Greater choice from an affordability perspective is contributing significantly to rental declines in smaller units, particularly for apartments. This trend is also being replicated in the villa market with units, which may have been previously unattainable for many tenants, now within budget. This has been compounded by landlords offering a range of special discounts to retain and entice new and existing tenants,” said Vucinic.

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From a sales perspective, prices continued the downward decline witnessed throughout 2018, with no let up for at least another year according to the report.  From an apartment sales perspective, Dubai Silicon Oasis and Dubailand proved to be the most resilient in Q3, witnessing a decline of just 2%, with prices at AED716 per sqft and AED 740 per sqft. In contrast, Discovery Gardens, as with rental rates, witnessed the steepest decline at 13% with units now available for AED 652 per sqft.

In the villa sales market, Q-on-Q Palm Jumeirah, which has previously been a stalwart of resilience and price increases, observed a 5% decline to AED2,187 per sqft. The softening witnessed in Q2 was intensified in Q3 with Arabian Ranches and Jumeirah Park both witnessing 8% drops while The Lakes decreased by 4%. The Meadows and The Springs, which remained flat in Q2 declined by 6% to AED935 per sqft.

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The volume and value of transactions for completed units dropped by 11% and 13% respectively, however, this was eclipsed by the decline in off-plan transactions, with a 31% decline in volume and 33% decline in value. This sector is, however, still dominating the market with several attractive incentives including five-year post-handover payment plans, registration fee rebates and guaranteed rental returns contributing to favorable conditions for investors.

“The lower number of off-plan launches, coupled with the increased affordability of completed units, has motivated some buyers to consider properties that are available to move into immediately,” added Vucinic.

Chestertons MENA offers a full range of property services, including residential and commercial sales and leasing, investment agency services together with professional valuation and plant and machinery services.