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Cityscape Global exhibition opens today amidst renewed optimism around recent measures by the government including the formation of a Higher Committee of Real Estate to have a positive impact on Dubai’s real estate market that is experiencing subdued demand.
“The recent announcement by Sheikh Mohammad bin Rashid Al Maktoum, Vice President of the UAE and Ruler of Dubai to introduce an alignment between the demand and supply characteristics will have a positive effect on market sentiment,” said Simon Townsend, Head of Strategic Advisory at CBRE MENAT in an email interview.
He said changes to visa rules as well as innovation and flexible purchase schemes such as the rent-to-own structures will help create additional stimulus in the property markets.
Dubai’s property market continues to be a buyer’s (and tenant’s) market as sale and rental rates maintained a downward trajectory even in the third quarter of 2019, with residential properties recording an annual fall of 11 percent in capital values, according to property consulting firm ValuStrat.
“The residential market in Dubai continued to soften further in 2019, mainly due to the inflow of new residential units coupled with various economic and social factors,” said Ali Siddiqui, research analyst at Reidin in his emailed responses.
Dubai market saw around 16,500 residential units being delivered Year to Date (YTD) 2019, with an additional 13,000 units are expected over the remainder of 2019, according to CORE’S latest Dubai Market Update YTD 2019, released on Sunday.
Whereas CBRE said that at the end of second half of 2018, there was around 589,000 existing residential units within Dubai and a further 92,000 expected to be delivered before the end of 2020.
Market play
Ian Albert, Regional Director and Head of Research and Valuations at Colliers International MENA said key factors impacting sales rates comes down to the volume of new supply delivered alongside the local and global economic landscape leading to a bearish market stance.
“Having said this, the drops in sales prices have attracted a new wave of investors/end users pursuing the opportunity in having a significant reduction in their initial capital required for property ownership,” he said in an email interview.
Albert pointed out that renters have also taken advantage of the discounted prices by upgrading into more established communities and better build quality units at flexible payment plans.
Lynnette Abad, Director, Research and Data at the Property Finder Group, said, overall, price declines have been healthy for Dubai as prices were inflated. “Today, Dubai still enjoys a six percent gross yield which is better than any other major city in the world,” she said responding to emailed questions.
With the significant amount of supply expected to be completed and handover from now to 2023, Abd said this will continue to add pressure both on sales and rental prices causing declines across the board.
“We will see declines in the double digits, however, this will make housing more affordable,” she said.
But, from developers’ perspective, the market continues to be tough although, CBRE’s Townsend noted, there has seen a slight improvement in residential transaction volumes as compared to last year.
“The rental market remains competitive and the transient nature of the residential rental occupiers has seen continual movement with either a flight to quality or as is perhaps more frequent a move to a larger residential space at similar rental levels,” he said.
CBRE findings reveal that areas such as Downtown have seen several large properties handed over which, Townsend continued, had strengthened the market offering with strong occupancy and rental levels holding.
“The payment terms being offered have started to adjust more in line with market norms and payment by multiple cheques is now more commonplace,” he said.
While both sales and rental values saw continued downward pressure, Nick Witty, Managing Director at Chestertons MENA said off-plan sales remained strong which indicate that the incentives offered by developers are having the desired effect.
“These incentives include five-year post-handover payment plans, the rebate of registration fees, freezing property service charges, guaranteed rental returns and even incentives related to creating businesses in the emirate,” he said over email, adding that off-plan inventories are largely focused on the affordable, mid-market options, which is likely to be having a positive effect on absorption rates.
Transaction wise, said Property Finder Group’s Abad, the market hasn't seen a decline, “therefore, the demand is still there”.
As a positive trend, the market has begun to see developers showing restraint when it comes to launching new projects and focusing on clearing unsold inventories. However, the industry consensus is that any positive effects of this is likely to be seen only after 2020 when demand and supply reach some level of equilibrium.
“There has been a marked slowdown in new project launches in recent months which is likely to result in completion levels decline from the cyclical peak after 2020,” said Craig Plumb, head of research, Mena at JLL in his emailed responses.
Commercial sector
CBRE research indicates that in addition to the 102 million square feet of existing offices there are a further seven million square feet to be delivered prior to the end of 2020.
Townsend said the global changes in work place strategies, whether it be the emergence of micro-offices or co-working structures, are the components of the market wherein there is a growing demand.
“In the office sector over the last 12 months we have witnessed an increase in vacancy rates and approximately a 10 percent fall in rents,” said Chestertons’ Witty.
Well-located developments offering non-strata Grade A office space such as DIFC owned properties, Design District, and One central, continue to outperform the market with healthy occupancy levels. Outside these developments, Colliers said the significant vacant supply of strata Grade A and Grade B stock across the city continue to exert downward pressure on rental rates.
In an attempt to attract tenants and given current initial capital challenges within small/ medium businesses, Colliers’ Albert pointed out that the market has witnessed an increased activity within landlords transforming their office stock to fully fitted plug and play options.
“This has to a certain degree played its role in attracting smaller businesses with lower Capex budgets,” he said.
Outlook
Industry experts interviewed agreed that the market is poised in the late downturn stage of property cycle with the current trend expected to continue in remaining of the year and even in 2020, as current glut will take its own time to get absorbed.
Reidin’ Ali said property prices can be expected to stabilise in late 2020 or early 2021 on the back of the Expo 2020 event.
He said the initiatives announced by the Dubai government to increase demand by relaxing existing regulations coupled with increased government spending will be a positive boost to the economy.
However, in the short term, due to the inflow of supply coupled with weak demand, reduced consumer spending and moderate economic growth, prices are expected to face further downward pressure this year, he concluded.
Chestertons too expects the first half of 2020 to be very similar to second half 2019 with continuing downward pressure.
Witty said when the 2020 Expo was awarded there was widespread exuberance in the market and predictions that there would be significant hikes in values. “However, since then we have experienced a reduction in the price of oil, the introduction of VAT and regional diplomatic issues,” he observed.
Whilst there may be some positive effects for the real estate market as a result of increased economic activity and the general positive sentiment attached to the event, he said this is unlikely to be long-lived or sustainable.
“We do, however, foresee the potential upside for the short-term lettings business as many of the predicted 25 million visitors may prefer Air BnB equivalents to hotel stays,” said Witty.
However, Abad also put a question mark on what will happen after 2021 with all the new supply in the market and the Expo long gone.
She suggested this is where legislation, affordable housing, creating incentives for developers and perhaps a relaxed mortgage cap would come in to level things off.
(Reporting by Syed Ameen Kader; Editing by Anoop Menon)
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