Further yield compression in Dubai real estate predicted
|By Arabian Post Staff| Dubai rental yields have trended lower structurally since 2009, indicating that investors are willing to accept risk with lower risk premia. Of all the major cities analyzed, Dubai remains far above the highest yielding city, suggesting that there is ample room for further yield compression, according to property portal Reidin.
In the first nine months of 2017, even though level of transactions are still 40% less than the peak in 2013–2014, number of transactions have risen by more than 20% compared to the same period last year. If transactional activity continues to ratchet higher, there could be some price escalation, it said. On the other hand, upcoming supply is expected to reach 140k units in the next couple of years. If the project realization rate by the developers increase (50% in the last 3 years) that may prevent prices to move upwards and also pressuring the rentals, Ozan Demir, Director — Operations & Research, Reidin said.
Propertyfinder reports a gradual and uniform decline in asking prices in Dubai. There is a pervasive sense that real estate is bottoming out, which meant a historic number of transactions in the last year, says Paul Spargo, Commercial Director, Propertyfinder. Falling prices makes buying a property more realistic for a larger Dubai population. Renters are moving into the buyer category, preferring to pay off their own mortgage, instead of their landlord’s. Dubai villa rents have experienced the biggest decline of all the categories (villas, apartments, for sale or to rent), but the decline is shallowing for other categories when compared to January 2016. This may be due to a significant number of affordable villas released to the market in areas such as Jumeirah Village Circle and Al Furjan. Looking to 2018, price decline may continue to ebb, and transactions — especially for the middle-income segment — are expected to remain strong, he added.
Matthew Gregory, Head of Property Sales, dubizzle, quotes JLL statistics to argue that the sales market in 2017 appeared to be close to the bottom of its current cycle. Whilst some areas experienced a decline in price per square foot, according to him, sales prices may not decline significantly in 2018. Despite a high number of planned projects in 2017, only approximately half of those units scheduled for completion were actually delivered by the end of the year. Dubizzle predicts a similar trend to continue in the next two to three years as there is an expected 120,000 units planned for completion by the end of 2020. With historically low materialization rates combined with the influx of sales due to demand driven by Expo 2020, it is unlikely that all of these units will be delivered on time, making it less likely for a disruption in the supply-demand equilibrium in 2018.
Haider Ali Khan, CEO, Bayut , says that as we move into 2018, further inventory will float on to the market and provide even more attractive opportunities, piquing the interest of a larger base of consumers to start considering owning a home in the UAE. The growth in the economy coupled with more affordable housing options, should provide for a healthy and positive trend for 2018, he said.
According to Ibrahim Al Ghurair, Muraba Properties, after a huge boom in recent years, the real estate market in Dubai is maturing. With this maturity comes higher expectations from buyers and demand for properties with finer design elements and of higher quality; in a market full of real estate opportunities, one can now be more and more selective.
Anton Yachmenev, Managing Director of Forum Group, says he expects to see the emergence of sophisticated buyers in the luxury market in 2018. Mario Volpi of Kensington Properties expects affordability to be one of the trends for 2018. “Whilst we are currently experiencing a somewhat challenging property market, where prices are naturally soft but in order for developers to keep the ticket prices of residential property at what can be described as affordable to the average person, the actual size of the finished unit will also have to be reduced. We have seen this trend already occurring by many of the current developers in locations such as JVC, Dubai South and Dubailand etc. Building smaller units will continue next year as this trend will guarantee the property’s affordability tag. Buyers or investors will now have to get used to smaller sized property units when choosing the affordable option,” he says.
Originally published at Arabian Post.