Tuesday, May 10, 2011

Major infrastructure projects will support the rebound of Dubai real estate



Oversupply in residential units is seen as the main factor behind
declines of rents and prices of properties, finds a Dubai Chamber
study
Completion of world-class infrastructure projects and an
excellent business environment will lead to the recovery in the
sector
Real estate sector rebound is expected at a slow pace as it may
take this year for the prices to bottom out





Dubai, UAE: A recent Dubai Chamber of Commerce and Industry

study reveals that prices in Dubai’s real estate market have declined

for the last two years due to oversupply in residential units. This is

also seen as the main factor behind further declines in rents and prices

of properties according to experts in the local real estate market.

Nonetheless a robust rebound is expected at a slow pace as it may still

take 2011 and the first quarter of 2012 for the sector prices to bottom

out, states the study.

Based on the price index and supply of units of Dubai’s residential real

estate sub-sector in 2010 and its outlook in the short term, published

by Colliers International and Jones Lang LaSalle and others, the study

reveals that completion of world class infrastructure and a business

friendly environment over the last two years will be among the main

factors behind the creation of more demand for Dubai real estate.

The study further reveals that remarkable transport infrastructure

investments such as Dubai Metro Green Line and the major extensions

of Dubai International Airport will increase the attractiveness of the

Emirate and the eventual rebound of its real estate market.

Overall Residential Real Estate Price Index

A blended index for Dubai quarterly house price index for the period

Q1-2007 and Q4-2010 is depicted in Figure 1. A blended index is

defined as an index that encompasses sale prices and rents of villas,

apartments and town houses.

Dubai’s house price index registered a 1% increase in

compared to

overall decline of about 6% in value when compared against Q4-2009.

The blended average house price for Q4-2010 was approximately AED

961 per square feet) compared to AED1, 022/ft2 in Q4-2009.

Q3-2010. On an annual basis, the index witnessed an

Figure 1 Dubai House Price Index

250

200

150

Index

100

50

0

Index Points (LHS)

Source: Dubai Chamber based on Colliers International

Quarterly % Change(RHS)

Annual % change (RHS)

Dubai Residential Market Supply Demand Trends

The total supply percentage share of villas and apartments in Dubai’s

residential market is composed of about 79% apartments and 21%

villas. Figure 2 indicates that in 2010, the supply pipeline in Dubai had

past its peak. According to Jones Lang LaSalle, in 2010 approximately

36,000 residential units were completed, bringing the total residential

stock to around 309,301 units by the end of the year.

In 2011, it is expected that about 25,545 units will be completed,

implying that the new supply of residential properties in Dubai is

expected to slow down by about 30% compared to 2010. According to

the same source, major residential projects have already started and

expected to be completed in H1-2012.

Figure 2 Supply in Dubai Residential Market

370 ,000

350 ,000

330 ,000

310 ,000

290 ,000

270 ,000

250 ,000

25 ,545

36 ,000

273 ,301

2010

Completed stock

309 ,301

2011

Future Supply

Source: Dubai Chamber based on Jones Lang LaSalle

From the demand side, the year-on-year Dubai residential numbers

have decreased by 53% and their corresponding transactions value

has decreased by 65% for the period between Q3-2009 to Q4-2010.

Dubai Apartments and Villas Price Trends

Investigating the individual price movements of residential apartments

and villas separately, Figure 3 shows that in Q4-2010, the overall

apartment

following a negative percentage change for the last quarters in a row.

Transactions of apartments increased by 16% for the same period

under investigation. On an annual basis, the overall apartment index

declined by 5% in Q4-2010 compared to Q4-2009. The biggest drop in

index

remained

unchanged

apartment lease rates was once again recorded for smaller unit types -

studios and one bedroom units.

The villa market has closely mirrored the pattern of the apartments

market during Q4-2010 with rates decreased by 3.3%. On an annual

basis, the drop was just 2%, with the smaller villa sizes of two and

three bedroom units witnessing the biggest reductions. Diminishing

lease and occupancy rates have resulted in some landlords being

willing to absorb service charges on behalf of the tenants, whilst

others are offering rent-free periods as an incentive. Other landlords

are offering rates of 10% to 12% below prevailing market levels in

order to secure tenants willing to pay their rent a full year in advance.

Figure 3 Dubai Apartments and Villas Price Trends (Q1-2007 =100)

250

200

150

100

50

0

Price Index Apparments

Price Index Villas

Source: Dubai Chamber based on Colliers International

Outlook and Conclusions

The study concludes by stating that Dubai’s real estate sector will

gradually recover with a lag to the recovery in the domestic and

global economy, even though it is unlikely to return to pre-crisis

sales or rental growth rates in the foreseeable future. The real estate

sector will remain under stress due to the onset of massive new

supply. Despite current challenges, Dubai, as the region’s financial

and business hub will continue to provide attractive investment

opportunities regionally.

Dubai has already laid down solid world class infrastructure and

an

investor-friendly

unique conditions will enable Dubai in the medium term to provide

opportunities for investors with long term objectives to enter the

market and acquire valuable assets at a discounted value. Recovery

and sustainable future growth of Dubai’s real estate market is subject

to some positive changes in market regulations and implementation

of existing laws that can ensure transparency by putting in place the

appropriate disclosure measures.

business

environment,

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