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Subdued quarter for Dubai residential real estate market

According to the latest report from real estate consultants CBRE covering the third quarter of the year total residential transactions reached just 1,459 compared with 2,649 transactions for the same period last year.
‘With no shortage of economic headwinds prevailing in Europe and the US, the potential fallout from another liquidity crisis needs to be considered from a local perspective,’ the report says.

‘However, amidst an environment of growing negativity, the United Arab Emirates has actually had its economic growth figures revised upwards by the International Monetary Fund. New estimates project 2011 growth of 3.8% , up from 3.3% earlier in the year. as the emirates continue on a modest path towards recovery,’ it adds.

But in a slightly conflicting outlook on the state of the local economy, a recent HSBC report has suggested that private sector activity is starting to wane against slowing global trade volumes.

‘However, this will not be sufficient to dampen economic expansion for 2011 at least,’ it explains.
It also points out that the opening of the new metro Green Line in September which passes through many of the most densely populated districts in Dubai could result in some stabilisation of rents and an increase in occupancy rates is anticipated in areas immediately surrounding operational stations as occupiers look to exploit the convenience of key public transport nodes.

Overall the report shows that lease rates for apartments and villas declined marginally during the quarter, but the market was characteristically quiet during the summer and Ramadan periods. On average, apartment rents fell by just 1% from the previous quarter, with the year on year fall at around 19%.

‘The entry of properties in new developments over the last year has been instrumental in reducing overall lease rates across the Emirate. A lack of infrastructure and community facilities continues to suppress rental potential and occupancy rates within newer residential development areas. Furthermore, the availability of properties at competitive rates in more established and developed master communities is forcing landlords to offer properties below market rates in order to reduce void periods and neutralise the loss of income through service charge dues,’ the report says.

Villa properties continue to outperform apartments as the more limited supply and strong demand for high end properties impacts overall performance. Despite this, average lease rates have dropped by 10% year on year, around half of the average decline for apartments during the same period.
The most significant fall was in the two bedroom apartment category at 26%. The lowest drop was for five bedroom villas at just 2%, reflecting the fundamentals at play and the relative oversupply of small villas and town house units in developments in Jumeirah Village and the Mirdiff area.

A comparison of villa properties within freehold and leasehold locations revealed an 8.6% and 10.8% dip over the past 12 months respectively. The main drag on leasehold locations emanated from the Al Barsha and Mirdiff areas, which both saw significant deflationary pressure on rents due to rapid supply growth over the past two years.

One of the key trends within Dubai’s villa market was the relative poor performance of smaller unit types. Two bedroom properties in both freehold and leasehold locations registered 44% and 20% declines respectively. Seven bedroom properties in freehold locations saw just a 3% fall during the same period as more limited supply and stronger demand fundamentals aided performance.