Cavendish Maxwell today released their Q2 2016 Residential Market Reports for Dubai and Abu Dhabi providing analysis and summary of apartment and villa properties, highlighting the price movement, rent and yield scenario, residential supply as well as the macro-economic factors impacting this segment.
Price performance Apartment prices in Dubai declined up to 1% during Q2 2016 and declined an average 6% over the last 12 months.
Prices have declined nearly 12% since highs in Q2 2014, with market direction largely imitating the oil price drop. Locations such as Business Bay and International City Clusters have witnessed 12 month declines higher than 7%.
“Transaction activity is expected to remain muted during the third quarter in line with past trends. Developers are promoting Ramadan-linked payment plans and the ‘affordable’ tag continues to be aimed at first time buyers. However, this is unlikely to ramp up buying activity in the short term among this target segment given the restrictive mortgage-lending requirements and overall liquidity in the market,” said Manika Dhama, Research Manager at Cavendish Maxwell.
In Abu Dhabi, price declines in investment zones were lower than Dubai, with an average 0.2% drop in Q2 2016 and 4% on a year-on-year basis. Locations such as Saadiyat Beach Residences and Al Raha Beach had higher 12 month declines than the market average. Investment yields for villas in Al Raha Gardens and Al Reef areas continue to remain attractive at rates of 6.7% on average.
There is still a wide gap between the strong demand for high quality villas and the existing supply, keeping the price declines in Abu Dhabi investment zones at a much lower rate than in Dubai.
Rent Performance Apartment rents in Dubai declined at similar levels as prices, thus investment yields remained largely unchanged this quarter. “Renters have been able to negotiate discounts on new leases, while tenants have found it harder to negotiate lower rents on renewal,” said Dhama.
Locations such as Jumeirah Lakes Towers, International City (clusters) and Jumeirah Golf Estates have posted 12 month declines of between 1% to 3%.
In Abu Dhabi investment zones, apartment and villa rents declined by 0.5% on average. Studios and two bedroom apartments registered higher declines than one bedrooms. Two bedroom apartments in Al Raha Beach and Saadiyat Beach residences witnessed 1% declines in Q2 2016. “Low oil prices and job losses in oil and gas and construction sectors have impacted demand. However, average declines have reduced marginally from the first quarter when rents had fallen between 1% to 2%,” said Dhama.
The Hidd Al Saadiyat luxury villa development featuring 461 villas is due for handover in Q4 2016. It is expected to impact rents at the higher end of the market. Residential Supply Approximately 2,800 residential units have been completed in Q2 2016 in Dubai, while nearly 71% of total units initially scheduled for Q2 have been delayed.
The majority of the completed developments in Q2 2016 were apartments, with less than 4% being villas and townhouses. There are 34,475 units scheduled to enter the market in second half of 2016, though delays are likely to greatly reduce actual delivery. Of the additional residential units set to be delivered in H2 2016, the majority are located primarily in Dubailand followed by Dubai Silicon Oasis and Meydan City.
In Abu Dhabi investment zones approximately 570 units were completed in Q2 with an additional 3,100 units set to enter the market in H2 2016. 90% of total upcoming supply in H2 2016 is apartments, with Al Reem Island the key location for providing much of this. Nearly 11,000 units are expected to be added to investment zones between 2017-18.
Cavendish Maxwell Residential Survey The Dubai report also draws on the Cavendish Maxwell Residential Survey conducted among agents in the region. For Q3 2016 the majority of agents surveyed predicted apartment and villa prices as well as rents to remain unchanged. In terms of transactions, 58% agents expect new buyer enquiries to increase, while 48% expect an increase in the number of agreed sales. The majority of those surveyed (42%) believe new seller instructions will remain the same during the third quarter.