House prices in Dubai are likely to fall further this year, but at a slower pace than in 2015 even as further supply comes on to the market, according to Asteco.
The property consultancy’s fourth-quarter report for Dubai and the Northern Emirates stated that villa prices fell by 11 per cent last year and apartment prices dropped by 8 per cent.
About 13,500 apartments and 800 villas and town houses were delivered last year, which was fewer than initially expected. As a result, approximately 22,000 apartments and 7,700 villas and town houses are due to be handed over this year, including 500 villas at Living Legends in Dubailand and 506 apartments at the much-delayed Marina 101 project.
Asteco said that the luxury end of the market remained oversupplied, which will lead to further house price declines and a drop in rents during 2016, with many tenants relocating to newly-completed units. In the short term, this will have a knock-on effect on rents in the Northern Emirates, as any prolonged declines in Dubai typically affect Sharjah and Ajman.
However, it added that the affordable housing sector, including staff and labour accommodation, remained undersupplied and said that when construction activity for infrastructure projects related to Expo 2020 ramp up, demand over the medium and longer term will continue to grow.
Villa prices dropped by an average of 15 per cent at The Meadows to Dh1,150 per square foot and by 13 per cent at Palm Jumeirah to Dh2,475, according to the study. Apartment prices fell by 16 per cent at Jumeirah Beach Residence to Dh1,370 per sq ft and by 14 per cent at Palm Jumeirah to Dh1,720 per sq ft.
“With fresh new supply entering the market, this is forcing property owners, especially of older independent villas, to become increasingly competitive on pricing,” said the Asteco managing director John Stevens.
Rents fell by 1 per cent on average, but were much higher in premium areas such as Sheikh Zayed Road (down 12 per cent), Dubai Marina (down 13.3 per cent) and even DIFC (down 8.7 per cent).
“For property owners, adjustments in terms of rental expectations and payment flexibility will have to be made,” Mr Stevens added. “And, as usual in cases of increased supply, better quality, well-managed or value-for-money properties will be able to achieve higher occupancy levels than others.”
Asteco said that on average, a one-bedroom apartment currently attracts a rent that is 24 per cent below the market peak reached in 2008, but 69 per cent higher than the trough in 2011. Two-bed apartments rent at 20 per cent below 2008 peaks.
A ReidIn/Unitas report, also published yesterday, said that although homes have only appreciated in value by just 16 per cent since 2009, total returns including rental income over the same period have been closer to 70 per cent. It argued that although prime properties have had higher levels of price growth (26 per cent), in terms of overall returns the gap is just 10 per cent as affordable housing offers better yields.
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