Currency fluctuations adding to slowdown in Dubai property market
Residential property prices in Dubai fell again during the second half of 2016 and the slowdown is projected to continue.
Data from two sets of figures covering the second quarter show that the real estate market is slowing although sales are holding up. However, currency fluctuations are adversely affecting demand from foreign buyers.
The data from CBRE shows that it was the sixth consecutive quarter of declines with the average sales rate down 2% quarter on quarter and 12% year on year, with the most significant fall recorded in the upper segment of the market.
‘Prices within the mid-market segment have proven to be far more resilient to this downward rate trend, reflecting the current demand for affordable accommodation in freehold communities,’ the report says.
Although sales have held up relatively well, rental values in the mid-market segment of the market in areas like Al Barsha, Oud Metha and Bur Dubai have fallen, reflecting the higher availability of homes on the market.
It suggests that the devaluation of major currencies, global economic uncertainty, redundancies and lower accommodation budgets mean that there is likely to be a further softening of demand levels and sales rates in the short term, especially for higher end and larger units.
Indeed, the firm predicts that property sales rates are set to fall further by an additional 3% to 5% in the coming quarters although some locations may vary.
‘It is estimated that around 48,000 new residential units, apartments and villas, could enter the Dubai market during the period 2016 to 2018, provided that construction delays are at a minimal,’ said Mat Green, head of research and consulting UAE at CBRE Middle East.
Meanwhile, the latest Phidar Advisory Dubai residential research note for the end of the second quarter of 2016 shows that residential prices dropped in the first half of the year and projects further declines.
‘Some claim this is a supply story, but supply has expanded slowly over the past thirty months. The current declines reflect soft demand,’ said Jesse Downs, managing director of Phidar Advisory.
The Phidar house price index data shows that apartment lease rates declined 2.2%, while sale prices declined 3.7%, pushing gross yields up to 7.9%, a three month gain of 12 basis points while lease rates for villas decreased 3.6% and sale prices declined 1.1%, which pushed yields down to 4.7%, a loss of 12 basis point in the first half of the current quarter.
‘The compression of villa yields is unsustainable and should slowly reverse in the coming year. Sale prices and rent declines for both villas and apartments will likely continue for the next 12 months, possibly up to 18 months,’ added Downs.
She also pointed out that as there are a high number of foreign buyers in Dubai currency fluctuations are affecting the real estate market.
‘The strong US dollar is one of the biggest barriers to a Dubai real estate recovery now. Unfortunately, a strong dollar also is usually associated with a low oil price, signifying a double hit to the market,’ she added.