The residential prices across Dubai, UAE, continued to decline in the third quarter with a sharp drop in apartment lease and sales rates compared to the previous quarter, said a report.
Additionally, the quantity of announced residential projects in Dubai reached a saturation point in the third quarter, stated property expert Phidar Advisory in its residential research note.
“However, there is no reason to panic because some announced and even launched projects are not viable, so handover is not expected in the stated timeframe,” remarked Jesse Downs, the managing director of Phidar Advisory.
“However, developers and other stakeholders should monitor this carefully and plan appropriately.” she cautioned.
Based only on supply pipeline estimates, the five-year forecast for supply is 2.8 per cent compound annual growth rate (CAGR) whereas the demand has a robust 5.8 per cent CAGR, largely due to jobs created by the development and running of the Expo 2020 project, which should start to ramp up in 2018.
Phidar’s supply pipeline estimates include only those projects actively under construction. However, when supply estimates include launched or announced projects without site progress, the 5-year supply CAGR jumps to 5.9 per cent-6.7 per cent.
Compared to the first half, Phidar’s Dubai Real Estate International Demand Index (REIDI) dropped eight per cent by the end of the third quarter, driven by exchange rate fluctuations.
Phidar’s Dubai REIDI is not a measure of actual capital flows, but a real time indicator intended to assess the propensity for attracting capital inflows into Dubai real estate. It is a composite index of GDP and foreign currency z-scores for 22 countries.
In the third quarter, apartment lease rates decreased a nominal -0.5 per cent, while sale prices decreased 3.6 per cent, pushing yields up to 7.5 per cent.
Lease rates for single family homes, also referred to as villas, decreased 1.5 per cent and sale prices decreased 3.4 per cent, which pushed yields up to 4.8 per cent, according to Phidar’s House Price Indices. The current yield expansion is necessary and healthy in the ongoing market correction.
“In the context of regional economic and geopolitical volatility, yield increase is a sensible trend in Dubai real estate,” said Downs.
“Market transparency is crucial because it can reduce perceived and actual market risk, which can compress yields and thereby positively impact asset values,” stated Downs.
“Of course, there are other sources of risk, but access to real time, high quality information will be a key step in our market maturation and Phidar is committed to contributing to that process,” she added