Phidar Advisory released its Dubai residential research note with November data, which is now reported using a 3-month moving average. The report shows that residential rents continue to decline and projects further declines.
“The risk in the residential market remains on the downside,” said Jesse Downs, Managing Director of Phidar Advisory. “Weak investment demand and softening rents will push rates down in 2017,” she added.
In November 2016, quarterly apartment lease rates declined 2.3%, while sale prices declined 0.5%, pushing gross yields down to 7.8%, a three-month loss of 10 basis points, according to a three month moving average of the Phidar House Price Index: Dubai 9/5. Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 1.6%, but sale prices increased 5.6%, which pushed yields down to 4.6%, a quarterly loss of 30 basis points in November, using a three month moving average.
“The recent bump in villa sale price is not indicative of a market turnaround,” said Ms. Downs. “It was likely caused by a decrease in investor demand, which reduced volumes and left owner-occupiers as the main buyers. Although occupiers are less sensitive to rent trends, they are still impacted due to uncertainty of tenure, so we do expect prices will revert to tracking rents in 2017.” she added.
In the first half of Q4-16, Phidar’s Dubai Real Estate Investment Demand Index REIDI decreased by 9.4% compared to Q3-16 and declined 17.7% since 2015, driven primarily by exchange rate fluctuations. In the first six weeks of Q4-16, the US dollar – and therefore UAE Dirham – strengthened against 13 of the 14 floating currencies included in the REIDI. The only floating currency that bucked the trend was the Australian Dollar (AUD) which gained 1.5% in the first half of Q4-16, compared to Q3-16.
“The recent interest rate hike by the FOMC will likely support US dollar strength and, combined with a still relatively low oil price, will continue to constrain investment demand for Dubai real estate in the coming year,” concluded Ms. Downs.