Dubai property prices won’t stabilize until H2 of 2017

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Supply Delivered is not the Supply Needed, Drives Further Declines

Today, Phidar Advisory released its Dubai residential research note for the end of Q3 2016. The report shows that residential prices continued to drop in the third quarter of the year and projects further declines.

“Slow demand growth remains the immediate barrier for price recovery,” said Jesse Downs, Managing Director of Phidar Advisory. “Weak demand combined with moderate supply growth will lead to further rent and price atrophy, likely into and possibly through 2017,” she added.

In Q3 2016, apartment lease rates declined 3.4%, while sale prices declined 4.1%, pushing gross yields up to 7.9%, a three-month gain of 5 basis points, according to Phidar House Price Index: Dubai 9/5. Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 1.8% and sale prices declined 4.8%, which pushed yields up to 4.9%, a gain of 15 basis points in Q3.

“There is a mismatch between the supply being delivered and new demand,” said Ms. Downs. “Indicators suggest companies are hiring for junior and mid-level positions, but much of the new supply handed over in the second half of 2016 is positioned for mid-high to high income households,” she added.

In Q3, Phidar’s Dubai Real Estate Investment Demand Index REIDI decreased by 8.9% QOQ and declined 9.1% since 2015, driven primarily by exchange rate fluctuations. In the first nine months of 2016, the US dollar – and therefore UAE Dirham – strengthened against 11 of the 14 floating currencies included in the REIDI. The remaining three floating currencies increased against the dollar: AUD (+0.9%), EUR (+0.6%), and SGD (+1.6%).

The Great British Pound had the most notable impact on the REIDI, a combination of the significant decline in the GBP and the historically high proportion of British investors into Dubai property. The GBP experienced the most significant decline (-14.1%), since 2015. The majority of value was lost in the past quarter (-8.8%) after the United Kingdom’s referendum to leave the European Union, also called Brexit, passed on 23 June. (Phidar’s Dubai REIDI is not a measure of actual capital flows, but a real time indicator intended to assess the propensity for attracting capital inflows into Dubai real estate. It is a composite index of GDP and foreign currency z-scores for 22 countries, each country is weighted by an estimate of the total contribution to real estate investment demand.)

“Strong US Dollar, low oil prices and weak occupier demand remain a barrier to recovery in 2016. In 2017, the biggest challenge may become supply and we do not expect stabilization until the second half of 2017,” concluded Ms. Downs.

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