Dubai’s Residential Market is Still Headed for Oversupply

The softening in rentals continue and will tell on sale prices too, says Phidar

Staff Report

A Jumeirah Lake Towers view from a tower in the Dubai Marina. Launched projects and those announced for completion in 10 years could add a further 120,000 units to the existing supply.

Dubai: Despite Dubai’s developers spreading out their new off-plan launches, work on their ongoing projects “remains steady” and will ensure the residential market is oversupplied until 2019 or so, according to a new report from Phidar Advisory.

So much so, launched projects and those announced for completion within the next 10 years could add a further 120,000 units to the existing supply. “The benefit of this potential supply injection is more affordable and stable housing costs, a factor that can stabilise/reduce labor costs and support general business and economic growth,” the report adds.

“Based on active construction projects, the three- and five-year demand CAGR (compounded annual growth rate) outpaces the supply CAGR, which will bring the market back to equilibrium.” (These projections do not include launched and announced projects for which construction has not commenced.)

Phidar’s report also takes a stance that is at odds with sentiments that suggest the Dubai residential marketplace has hit the floor on value declines. In suggesting this is not the case, the consultancy ties the lower rental demands to further falls for property values. “Our research indicates rent declines are accelerating and will likely continue through the summer” said Jesse Downs, Managing Director of Phidar Advisory. “This will inevitably pull sale prices down.”

“In a down-cycle, the lowest advertised rent is particularly sensitive to market shifts and can be the harbinger of market trends,” the report notes. “By the beginning of June, the lower limits of asked rents decreased by 4.1 per cent compared to the same week in the previous month.

Gradual decline

“Since rents peaked in May 2014, the decline has been gradual, equal to a compound monthly rate of -0.3 per cent. However, in May 2016, the monthly rent decline reached -1.3 per cent.

“Rent declines usually turn into sale price declines, especially considering the prevalence of yield-sensitive investors. So, sale price decline will likely accelerate in the coming months.”

With the upcoming Eid holidays preceding the summer stretch, it could be that transactional activity will taper down significantly in keeping with trends spotted in years past. The exception was in 2013, when the market was heading steadily upwards on speculative activity.

The business of real estate in Dubai has become truly commoditised with some developers testing out Ramadan-linked offers, as can be seen in the fashion, automotive or other categories.

Dubai Properties has announced a flexible payment plan for purchasers of properties at its Arabella and Serena developments during Ramadan. As part of the terms of the offer, a 10 per cent down-payment is made followed by bi-annual payments over a three-year period for 30 per cent of the purchase price.

During handover, an additional 30 per cent payment is made, and balance of the purchase price is made during the two years after final handover. Units range in price from Dh1.3 million to Dh2.2 million.

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