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Report: Dubai residential sector down in Q4 2018; no clear equilibrium

Excerpted from a 2019 Chestertons report

The performance of Dubai’s residential sector during the fourth quarter of 2018 saw a further decline in both sales and rental values which was mainly attributable to the increasing excess supply being released to the market. However, UAE Government departments recently announced a number of new initiatives, both legal and financial, which will have a knock-on effect on the real estate market. These include the removal of the 20% cap on an individual bank’s real estate lending as a percentage of its total deposits.

In terms of a potential market recovery, unless there is a significant decline in construction activity, a boost in population and further economic stimulus created in the short term, it is unlikely the real estate market will reach a demand and supply equilibrium in the near future.

Sales Prices The downward price corrections witnessed throughout 2018 continued in Q4, albeit at a slightly slower pace than witnessed in Q3. Average apartment sales prices were down 5% from the previous quarter, whilst average villa prices were down 3% from Q3. With regards to year-on-year performance, apartment sales prices were down 16% from 2017 whilst villa sales prices declined by 13% from 2017.

Rental Rates In Q4, as in previous quarters, we continued to witness downward pressure on rents. This was a consequence of additional supply. Average rents saw a further 4% decrease in the apartment market and a 3% decrease for villas from Q3. Year-on-year performance for apartments saw average rents decline by 12% from 2017, with villa rental rates decreasing 8% from the previous year.

Transactions From Q3 to Q4 2018, the number of transactions in relation to completed units increased by 22%, whilst for off-plan units the number of transactions increased by 33% from the previous quarter – a significant uplift from Q3 which saw downward adjustments of 11% and 31% respectively.

Market Outlook We expect sales prices and rents to continue softening into 2019 as supply continues to enter the market – something which is unlikely to change in the run up to Expo 2020.

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Completed units continue to prove popular due to increased affordability

The downward price corrections witnessed throughout 2018 continued in Q4, albeit at a slightly slower pace than witnessed in Q3. Average apartment sales prices were down 5% from the previous quarter, while average villa prices were down 3% from Q3.

Apartments in areas such as Dubai Marina, Dubailand, Discovery Gardens and Dubai Silicon Oasis continued to remain resilient. The highest declines were seen in International City, Dubai Sports City and JVC, all with a 9% decrease in prices since Q3.

The largest year-on-year price decline for apartments was seen in Discovery Gardens with a 25% drop from 2017. The most resilient apartment location was Dubailand with just a 5% adjustment from the previous year.

The biggest year-on-year price decline for villas was in Palm Jumeirah with a 15% drop from 2017 and the most resilient villa locations were The Meadows and The Springs with a 12% adjustment from the previous year.

During Q3 2018, there was a higher decline in off-plan sales as opposed to completed units. We predicted in our Q3 Observer report that due to increased affordability, completed unit transactions would increase over the coming quarters. In Q4 we saw an increase of 22% in transaction volumes over Q3 and a 7% uplift across 2018 as a whole.

In 2017, 35% of all residential transactions were related to completed units. In 2018, this figure increased to 41%, so it is clear there has been a shift in buyers’ interests.

Poll: 62% of users negotiated a rent decrease in the last year

Tenants re-negotiate or re-locate to make savings on their annual rent

Average rents have seen a further 4% decrease in the apartment market and a 3% decrease for villas from Q3.

As a result of these adjustments, many tenants are making significant savings on their annual rents by either re-negotiating with their current landlords on price and terms, re-locating within their existing district or moving out to a cheaper location. Landlords have had to become increasingly flexible as the market becomes more competitive.

In the apartment market, the biggest declines were seen in Dubai Marina, Dubai Silicon Oasis, Dubai Sports City,  Dubailand and International City – all of which saw 5% declines from Q3. Established communities, offering good facilities at affordable rents such as DIFC, Business Bay and Discovery Gardens witnessed a small movement with a 1% decline from Q3.

There has been a year-on-year recorded drop of 16% for studios followed by a year-on-year 12% rental decrease for 1 bedroom units.

In the villa market, the biggest average rental decline was seen in Al Furjan at 7% from Q3 with the most resilient locations being Palm Jumeirah, Jumeirah Islands, The Lakes and The Springs with declines of 1% from Q3.

Year-on-year, the biggest average rental adjustments were seen at Palm Jumeirah and Al Furjan – both with a 13% drop from 2017. The most resilient locations in 2018 were JVT, Jumeirah Golf Estates and The Lakes witnessing 4% declines from the previous year.

Due to additional stock being available and limited new demand, landlords have had to compete, not only on rental rates but have had to introduce incentives to attract and retain tenants. These incentives include multiple rent cheques, some of which even extend to monthly payments, as well as rent-free periods. Other incentives have included the waiver of security deposits, multiple cheques to cover utility bills, short-term leases and in some cases we have witnessed landlords covering the cost of agency fees.

We expect rents to continue softening into 2019 as a consequence of additional supply being added to the market where tenants are now seeing better value for money and greater levels of availability across the board.

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Predicted key market trends for Dubai’s residential sector in 2019


We predict there could be keen competition between developers to keep plying the market with attractive incentives as oversupply continues to dominate the agenda.

The removal of the 20% cap on banks’ real estate lending will affect the market, as it is clear this has been introduced to provide more flexibility to individual banks with the aim of helping them extend their lending to buoy the real estate sector.


The Dubai Land Department, in cooperation with Smart Dubai, is looking at how to adopt Blockchain technology within its electronic real estate platform. Although this initiative is still in its early stages, it has the potential for multiple applications that include property purchases, property mortgages, utilities payments and property and facilities management.

Real Estate Design

One of the key trends that emerged towards the end of 2018 in the UAE, is off-plan developers decreasing the size of units to cater to a new market segment looking for more affordable housing. By lowering ticket prices, the aim appears to be to increase absorption rates.