Post-slump Dubai rental yields to 'stabilise at 8%', but no agreement on end date for downturn
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Post-slump Dubai rental yields to 'stabilise at 8%', but no agreement on end date for downturn

Post-slump Dubai rental yields to 'stabilise at 8%', but no agreement on end date for downturn

Although rental returns from residential properties in Dubai are still falling, once the market stabilises these will level out at average yields of 8%, according to Better Homes' Managing Director Ryan Mahoney.

    Mahoney told AME Info that prices in real estate in the emirate would not see the kind of price appreciation witnessed last year, once the market stabilises.

    'As investors, financial institutions, developers and the government make sense of the somewhat chaotic environment that's out there and reposition themselves you'll see prices come down significantly,' Mahoney confirmed.

    'Then they will stabilise, and they'll be in that position for some time. It's really hard to say but we expect it to be months.'

    The Dubai property market has continued on its downward spiral, but companies are now beginning to confirm handover dates in 2009, with some of the emirate's biggest, and most embattled, developers issuing statements on completions of the first phases of certain projects.

    However analysts agree that the days of annual doubling of real estate investments are over.

    'As the market starts to see some signals from the financial institutions that there is going to be some movement I think that you'll start to see incremental appreciation over a period of time,' said Mahoney.

    'What we don't expect to see is a sudden boom as people start to see the financial situation easing or the government making key moves.'

    Dr Salem Alshafiei, Managing Director of the Dubai Real Estate Institute agrees.

    'The million dollar question is 'when' things will turn around. At the moment you have optimistic predictions and pessimistic predictions and noone can agree on a date. I think that maybe at the beginning of 2010 we may begin to feel some difference, but it will only happen slowly,' Alshafiei told AME Info.

    Rental rates

    Rental rates across Dubai had risen by close to 75% over a two year period, leaving many residents facing unmanageable cost of living expenses.

    The emirate's Real Estate Regulatory Agency (Rera) released the results of its first property price index in January, from price bands collated over summer 2008 when lease rates were at their peak, to the dismay of those who had been looking for a realistic take of the situation on the ground as the market continued to fall.

    The agency plans to release an updated version of the index in April, with prices reflecting a more up-to-date picture of the rental market.

    'I would say that some properties may be approaching the 'as low as they go' area, but for others I think the middle of this year would be a good estimate,' said Mahoney. 'We expect rental yields, as they are reducing, to stabilise somewhere around the 8% to 10% region.'

    'Once the economy starts moving forward again, and people begin coming back to the market, I think that the supply and demand gap will mean that we may see returns of around 8% eventually, but it will not be straight away,' said Alshafiei.

    Market confidence initiatives

    The Dubai, and federal, government has launched a number of initiatives to stabilise the real estate market, and help restore investor confidence.

    These include the creation of a consolidated real estate bank to help provide financing, the issuance of bonds to support public spending and plans to issue residency visas (although of only six-month timelines) to property investors.

    'Those government initiatives are steps that have to be taken, and I think that we are going to see a whole lot more this year. We also expect to see the availability of mortgage financing, improved loan to value ratios and so on,' said Mahoney.

    'We hope that it will give the local, and international, community more confidence.'

    See also:
    Watch: Ryan Mahoney examines the state of Dubai's property sector (Part 1)
    Watch: Ryan Mahoney analyses the outlook for Dubai's property sector (Part 2)
    Dubai's real estate industry 'at low point'
    Residential prices slump by 50% as city becomes a buyers market
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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