Oversupply in residential units is seen as the main factor behind
declines of rents and prices of properties, finds a Dubai Chamber
Completion of world-class infrastructure projects and an
excellent business environment will lead to the recovery in the
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
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
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
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
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
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)
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
Dubai has already laid down solid world class infrastructure and
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.