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Dubai residential market prices inching up, hospitality struggling

Prices on residential real estate in Dubai have improved in 2021, in some locations more than others. The hotel sector shows promise but is straining to recover quickly, as previously expected

The sale prices of premium properties in attractive locations have seen 10%-20% increases The oversupply will continue to cramp hotel operators and their profitability Office space will remain exposed to the risk of high vacancy rates and rental pressure

Prices on residential real estate in Dubai have improved in 2021, but the path to sustainable recovery is blurred by structural oversupply, S&P Global Ratings said in its “Real estate recovery to be Uneven in Dubai” report.

The hotel sector shows promise but is straining to recover as previously expected.

Residential

In residential real estate, bigger and well-established developers, offering high-quality assets in prime locations, are set to capture energized demand. However, secondary players will continue to struggle due to structural oversupply, which will challenge long-term price increases.

The sale prices of premium properties in attractive locations have seen 10%-20% increases since the start of the year, while prices across the wider market increased by 23% year-on-year for the quarter ended June 2021, S&P said.

Recent market data suggests that apartments, which account for 85%-90% of total properties, also witnessed a price increase of about 6% in Q2. Rents for apartments experienced some sequential pick-up in Q2.

Hospitality

The hospitality segment will continue to struggle as international travel to Dubai has been slow so far in 2021. S&P believes tourism may not recover to pre-pandemic levels until 2022 or later, despite the momentum from Expo 2020.

The oversupply will continue to cramp hotel operators and their profitability despite slower-than-expected capacity additions. New keys ahead of the World Expo were scaled back from the initial plans, with a mere 5.5% growth between end-2019 and end-June 2021.

This brought the total keys number to 134 thousand. Even though occupancy rates have improved steadily from a very weak 2020, levels remain rather low at 58.4% this August versus 67.9% in August 2019. S&P anticipates that hotel operators will continue to offer staycation deals to domestic tourists to compensate for the absence of international travelers.

S&P is of the opinion that resumed flights from India since August and Qatar’s hosting of the World Cup in 2022 may also usher tourists into the GCC, particularly Dubai. It said being one of the world’s leading travel destinations, Dubai is well-positioned to capture early resumption of international air traffic.

Office space

S&P anticipates that office space will remain exposed to the risk of high vacancy rates and rental pressure and tenants may reconsider their workspace needs, considering remote work arrangements and the abundant amount of office space available.

VPI- Villas and Apartments

Pioneers of the ValuStrat Price Index, VPI analyses and reports the change in capital values experienced by a representative fixed basket of freehold residential and office units.

It said Dubai residential capital values as of September 2021 saw villas increase by more than 20% annually in most areas, while the apartment submarket continues to improve, but at a much slower pace.

All 13 villa locations and 21 apartment areas monitored by the VPI have seen their capital values either stabilize or improve as compared to the previous month. For villas, the highest annual capital gains were found in older gated communities such as Arabian Ranches (26.8%), Jumeirah Islands (26.4%), The Lakes (23.6%), and the Meadows (22.6%).

For VPI monitored apartments, top annual performers in terms of capital gains were found within established beachfront communities in Palm Jumeirah (11.2%), and Jumeirah Beach Residence (9.4%).

The month of September saw sales transaction volumes down 8.3% when compared to August. Month-on-month performance saw ready sales fall 10% and off-plan Oqood (contract) registrations decline 6.4%.

However, September saw no less than 22 transactions valued at over AED 30 million dirhams ($8.2 mn) each; this is compared to 12 sales of similar value during the previous month and just 6 sales during September last year.

Such sales for 18 villas and 4 apartments were concentrated in Dubai Hills Estate, Emirates Hills, and Palm Jumeirah.

Topping the sales charts overall were properties developed by Emaar (24.7%), Damac (8.7%), Dubai Properties (6.8%), and Nakheel (4.6%).

Top off-plan locations transacted in September were in Business Bay (9.1%), Jumeirah Lake Towers (7.7%) Sobha Hartland (7.6%), and Villanova (7%). Most transacted ready homes were located in Business Bay (9.9%), Jumeirah Village (9.2%), Dubai Marina (6.6%), Akoya Oxygen (5.6%), and Dubai Hills Estate (4.4%).