Z
Zishan M. Khan
New Member
The year 2016 was anything but stable, not just for Dubai but its impact was felt globally. Behind closed doors and in private conversations most businessmen and budding entrepreneurs whisper how happy they are to move on to the next year. The UAE property market had a bit of a bumpy ride all through 2015-2016, seeing highs and lows (generally called a ‘bubble’ situation) within this period but at the end came out with flying colors. The unrelenting effort by the government and the important real estate players ensured that new iconic projects are announced and launched backed by timely infrastructural development. There is no certain way to predict how 2017 is going to be for the UAE real estate sector, but most think tanks agree that recovery and gains are just around the corner, albeit not high.
The fact remains that Dubai is not immune to the external macroeconomic factors. What happens globally, whether geopolitical or economic changes, will surely have a knock-on effect on Dubai. There still is room for some correction in prices in certain areas/locations but the huge and rather ambitious projects being launched backed with infrastructural development will ensure that the public sentiment remains positive, which has historically proved to be one of the key ingredients in Dubai’s overall economic growth.
The Pricing
2016 saw a decline in prices in several locations across Dubai. Emirates Living and in particular the Springs and Meadows, Al Furjan, Motor City and Victory Heights saw a slide in prices between 5%-8%. Downtown saw a price drop between 8%-9% and Dubailand went down by 12%-13%. The overall residential values slid down by 7.4% in 2016.
The biggest hit was taken by the luxury sector with prices in Palm Jumeirah Villas, Hattan and The Lakes sliding down by 11.1%-11.9%. This segment is directly linked to pulling down the overall residential values in Dubai. In direct contrast to this price decline, affordable communities like Jumeirah Village Circle saw no price change at all.
There is a clear pattern here. Luxury and high end properties took the most hit because of the shrinking demand in high level executive jobs in the U.A.E. due to a weak economy and the reluctance of the existing clients to commit to an expensive purchase. Most of the transactions done in the affordable sector were by the end users or long term investors. This is certainly a healthy trend which tends to create a very stable market. On the flip side this trend also means lower number of transactions which results in lower liquidity in the real estate industry. For the real estate sector to prosper, a healthy mix of investors and end users are required to purchase both the affordable and the luxury housing.
The Rental
The second quarter of 2016 saw the average rentals decline by 4.4% across the freehold area and left the rentals down by 8% in the fourth quarter. On a positive note most apartment rents were unchanged in the third quarter while the villa sector took the maximum hit of 9.4% on an annual basis, pulling the overall averages down.
The rental decline pattern followed suite with the sale model, with the luxury areas seeing the most rental decline. Palm Jumeirah, Jumeirah Islands and The Lakes saw the most rental decline.
It would not be wise to say that the rental market has bottomed out but it certainly would be safe to assume that the decline rate has started to slow down.
Most investors buying a property with a long term focus do so for the annual ROIs. This buying pattern is the reason why the affordable residential market has not seen much of a decline in sales pricing and the ROIs remain mostly steady. Places like Jumeirah Village Circle, Jumeirah Village Triangle, IMPZ etc being a prime example of this trend.
The Supply
2016 saw 34,000 new units delivered in the market with many new projects being either launched or announced in the last 2 years. Developers are still marching ahead with project launches and construction of the current projects inorder to keep in line with the delivery dates. Although, the demand and supply ratio is in a delicate sync at the moment, the aggressive project launches, if not kept in check in 2017, will easily weigh in on the supply ratio, further suppressing the already weak real estate market. The bright side to this theory is that developers for the past few years have always tended to be too optimistic in the project completion dates and only 30% have managed to hit the targeted delivery dates. I believe 2017 is going to be no different while the actual supply seeing the traditional increase of 3%-4% on a year on year basis.
Developers understand the importance of the supply and demand ratio and continue to phase out their projects inorder to keep this intricate balance. The majority of residential units set to be delivered this year are located in Dubailand, mainly in Akoya and Arabian Ranches II followed by Business Bay and Dubai Sports City.
The Conclusion
The first 2 quarters are likely to see a further softening of the sales price. The actual rise in the property market might not happen until the fourth quarter of 2017. The only foreseen difference would be that unlike in 2016, affordable housing might see a certain decline in value due to the gut of supply in that segment. The primary market would certainly make gains, based on location and payment plans but the overall secondary market will remain subdued.
There is a strong chance of the already strengthening rouble to gain further value and that is bound to see the Russian buyers coming back into the market. This is always good news for sea facing properties, particularly The Palm Jumeirah. Indian buyers, who have been the biggest expat investors are expected to start investing heavily again into Dubai real estate, due to property law changes in India. The rising oil prices will also strengthen the economies of the oil producing countries and the strengthening of the Gulf economies in particular will raise the demand in real estate.
The fact remains that Dubai is not immune to the external macroeconomic factors. What happens globally, whether geopolitical or economic changes, will surely have a knock-on effect on Dubai. There still is room for some correction in prices in certain areas/locations but the huge and rather ambitious projects being launched backed with infrastructural development will ensure that the public sentiment remains positive, which has historically proved to be one of the key ingredients in Dubai’s overall economic growth.
The Pricing
2016 saw a decline in prices in several locations across Dubai. Emirates Living and in particular the Springs and Meadows, Al Furjan, Motor City and Victory Heights saw a slide in prices between 5%-8%. Downtown saw a price drop between 8%-9% and Dubailand went down by 12%-13%. The overall residential values slid down by 7.4% in 2016.
The biggest hit was taken by the luxury sector with prices in Palm Jumeirah Villas, Hattan and The Lakes sliding down by 11.1%-11.9%. This segment is directly linked to pulling down the overall residential values in Dubai. In direct contrast to this price decline, affordable communities like Jumeirah Village Circle saw no price change at all.
There is a clear pattern here. Luxury and high end properties took the most hit because of the shrinking demand in high level executive jobs in the U.A.E. due to a weak economy and the reluctance of the existing clients to commit to an expensive purchase. Most of the transactions done in the affordable sector were by the end users or long term investors. This is certainly a healthy trend which tends to create a very stable market. On the flip side this trend also means lower number of transactions which results in lower liquidity in the real estate industry. For the real estate sector to prosper, a healthy mix of investors and end users are required to purchase both the affordable and the luxury housing.
The Rental
The second quarter of 2016 saw the average rentals decline by 4.4% across the freehold area and left the rentals down by 8% in the fourth quarter. On a positive note most apartment rents were unchanged in the third quarter while the villa sector took the maximum hit of 9.4% on an annual basis, pulling the overall averages down.
The rental decline pattern followed suite with the sale model, with the luxury areas seeing the most rental decline. Palm Jumeirah, Jumeirah Islands and The Lakes saw the most rental decline.
It would not be wise to say that the rental market has bottomed out but it certainly would be safe to assume that the decline rate has started to slow down.
Most investors buying a property with a long term focus do so for the annual ROIs. This buying pattern is the reason why the affordable residential market has not seen much of a decline in sales pricing and the ROIs remain mostly steady. Places like Jumeirah Village Circle, Jumeirah Village Triangle, IMPZ etc being a prime example of this trend.
The Supply
2016 saw 34,000 new units delivered in the market with many new projects being either launched or announced in the last 2 years. Developers are still marching ahead with project launches and construction of the current projects inorder to keep in line with the delivery dates. Although, the demand and supply ratio is in a delicate sync at the moment, the aggressive project launches, if not kept in check in 2017, will easily weigh in on the supply ratio, further suppressing the already weak real estate market. The bright side to this theory is that developers for the past few years have always tended to be too optimistic in the project completion dates and only 30% have managed to hit the targeted delivery dates. I believe 2017 is going to be no different while the actual supply seeing the traditional increase of 3%-4% on a year on year basis.
Developers understand the importance of the supply and demand ratio and continue to phase out their projects inorder to keep this intricate balance. The majority of residential units set to be delivered this year are located in Dubailand, mainly in Akoya and Arabian Ranches II followed by Business Bay and Dubai Sports City.
The Conclusion
The first 2 quarters are likely to see a further softening of the sales price. The actual rise in the property market might not happen until the fourth quarter of 2017. The only foreseen difference would be that unlike in 2016, affordable housing might see a certain decline in value due to the gut of supply in that segment. The primary market would certainly make gains, based on location and payment plans but the overall secondary market will remain subdued.
There is a strong chance of the already strengthening rouble to gain further value and that is bound to see the Russian buyers coming back into the market. This is always good news for sea facing properties, particularly The Palm Jumeirah. Indian buyers, who have been the biggest expat investors are expected to start investing heavily again into Dubai real estate, due to property law changes in India. The rising oil prices will also strengthen the economies of the oil producing countries and the strengthening of the Gulf economies in particular will raise the demand in real estate.
