Average apartment and villa prices softened by around 1% in Dubai in the first quarter of 2018 with higher prices villas in particularly drawing few buyers, the latest analysis report shows.
Year on year villa prices are down by 6% and apartment prices are down by 9%, according to the report from real estate services firm Asteco.
It points out that large villas with high price points have generated limited interest from buyers, mainly due to the lower investment yields attached to this type of property and currently the main focus is on affordable units.
It also points out that although the term ‘affordability’ is often used very loosely in the context of Dubai’s real estate market, the majority of banks and developers stipulate a minimum monthly salary of AED15,000 in order to purchase property in the emirate.
Nevertheless, Asteco recorded a moderate increase in enquiries and transactions for high-end residential units, suggesting that albeit at a conservative level, there is still appetite for this product.
‘However, despite the boost in luxury real estate launches and announcements, we believe developers will continue to focus on mid-market housing because,’ the report says, adding that there is a substantial supply gap in the market.
In the lettings market rents have fallen by 1% quarter on quarter and the report says that newly handed over, lower end buildings in areas with significant supply potential, have struggled with occupancy/takeup, particularly where rates and incentives were not aligned with the market.
The data shows that year on year rental declines have been consistent in each quarter over the past 12 months, averaging more or less a fall of 10% for both apartments and villas. In addition, incentives such as multiple cheques, rent-free periods, and the absorption of utility, maintenance and/or agent fees have become the norm.
Asteco anticipates that approximately 30,000 residential units will be delivered in 2018. Past evidence has shown that the actual delivery rate is significantly lower, often due to delays, and so far only 3,650 properties or 12% have been handed over in the first quarter of the year.
Meanwhile, in neighbouring Abu Dhabi, apartment sales prices remained broadly unchanged over the quarter for the majority of locations, with the exception of Marina Square down 5%, Reef Downtown down 6% and Sun and Sky Towers also down 6%.
The report suggests that they these locations have seen increased competition from new off-plan developments offered at attractive rates and favourable payment plans. Similarly, Al Reef was the only area recording a drop in villa sales prices at an average rate of 2%.
Apartment and villa rental rates declined on average by 3% and 2% quarter on quarter and 11% and 9% respectively year on year and vacancy rates increased across all residential unit types.
Approximately 1,600 residential units were delivered in the first quarter of 2018 in Abu Dhabi with the majority, more than 75%, located within the Investment Zones, including, but not limited to Yas Island, Al Reem Island and Al Raha Beach.
Whilst more than 7,300 units are earmarked for handover before the end of 2018, previous delivery patterns suggest a number of these are likely to be delayed and will spill over into 2019, the report adds.