Rents for homes in prime areas of Dubai fell sharply in the second quarter of this year as residents sought out more affordable property.
Housing costs in the emirate’s upmarket areas, such as The Palm Jumeirah and DIFC, continued to fall during the three months to June by 2 per cent for apartments and 3 per cent for villas, according to new research by CBRE.
The property consultancy found that rents were also subject to steeper declines in prime areas including Dubai Marina, Jumeirah Beach Residence (JBR), Palm Jumeirah, Greens and Jumeirah Lakes Towers, whereas rates in secondary locations such as Discovery Gardens, Al Nahda and Hor Al Anz held their value. The consultancy said this reflected a continuing “flight to affordability” in the market.
Residential sale prices also dropped by 2 per cent on the previous quarter, mirroring a similar decline in the first three months of the year. Again, the biggest drops in value were in prime areas, with the affordable end of the market being described as “outperforming”.
Asteco property consultants also reported a 2 per cent decline in rental values during the second quarter, and stated that prime areas were some of the worst-performing. It said rents on Sheikh Zayed Road dropped by 7 per cent and at Palm Jumeirah and DIFC by 6 per cent.
Again, rents in affordable areas such as Deira, International City and International Media Production Zone (IMPZ) remained stable, while Dubai Sports City was the only district where rents increased – by 1 per cent.
According to Asteco, the most expensive area for rentals is The Palm Jumeirah, where two-bed apartments range from Dh140,000 to Dh250,000 per year. The most affordable area is International City, where a two-bed apartment costs Dh60,000 to Dh68,000 per year.
“The softening in Dubai’s residential rental market appeared earlier than we originally anticipated, offering tenants in the emirate an opportunity to recoup somewhat after several tough years of high rents,” said Asteco’s managing director John Stevens.
“The decrease was felt throughout the market and areas with a significant amount of completed new supply were the most affected.”
Mr Stevens said that there were “minimal transactions” in terms of sales of five and six-bed villas, and those that were sold were in more affordable areas such as Dubai Sports City. Areas including IMPZ, Dubai Silicon Oasis and International City were most active for apartment sales. Mr Stevens said that with many more units due to be handed over “the 2 per cent quarter-on-quarter decline is not going to be a temporary blip, with more pressure on owners to review their selling price still to come”.
Asteco also said there was an emerging trend by a “limited number of purchasers” offloading off-plan properties at a discount as they get close to completion and final payments become due.
The higher value of the dirham against the euro and the rouble is understood to have had some impact on transactions, with Dubai Land Department figures showing a 14 per cent decline in volumes and a 15 per cent drop in the value of property sales.
Currency fluctuations also had an impact on the hotels sector, with revenues per available room dropping by 8.3 per cent to Dh764 in May, according to STR Global.
CBRE’s head of research for the UAE, Matthew Green, said the decline was because of a 6.9 per cent drop in average room rates and a 1.5 per cent decline in occupancy levels.
“Although the Dubai hotel market saw performance soften during the first five months of the year, demand remained rather robust, with occupancies and [average daily rates] averaging 83.8 per cent and Dh913, respectively,” said Mr Green.
He said rates would come under further pressure as the supply of new hotel rooms is ramped up in the run-up to Expo 2020.
Dubai currently has about 28,000 keys, or rooms, in various stages of development that are set to be delivered by 2018. “The phasing of development over the next five years will have a substantial impact on supply and demand dynamics,” said Mr Green. “The submarkets of Jumeirah Beach, The Palm Jumeirah, Business Bay and Dubai Marina, JBR are predicted to have the highest growth in the coming years.
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