A look into the fragmented decline of residential markets

Affordability remains a key trend in Dubai and Abu Dhabi residential markets as villa and apartment sales continue to decline in a fragmented pattern. Rentals, on the other hand, are declining at a slower pace and even showing an increase in some areas. The first-quarter reports from various consultancies point to an end-user friendly market this year.

Abu Dhabi

Although residential demand has declined, residential rents have remained stable particularly in higher grade stock due to limited vacancy, according to property consultancy JLL. Transaction volumes are also significantly down due to the decline in sentiment, despite residential sales prices remaining stable. ''[This] may put pressure on prices later this year,'' JLL states.

Cluttons has seen further weakness in sales. ''In the 12 months to the end of Q1 2016, the value of villas across Abu Dhabi's residential investment submarkets fell by 1.4 per cent,'' according to Cluttons' Property Outlook 2016.

The average price of an Abu Dhabi villa is around Dh1,250 per sq ft, according to Cluttons, and while villa values have stagnated, the steadiest decline is in the luxury sector. ''For example, sea-view villas on Saadiyat Island registered a 4.4 per cent decrease, deflating average values to approximately Dh2,150 per square foot,'' the report states.

Apartment prices have remained unchanged, although Cluttons says annual growth rate has further compressed to 0.8 per cent from 1.1 per cent at the end of 2015.

Chestertons puts the decline in villa and apartment sales prices at around 2 per cent and 1 per cent respectively, although it says Abu Dhabi continues to enjoy an average yield of 6 per cent.

''Quality apartments proved to be the choice of investors with Al Reef Downtown and Al Muneera securing the highest yields of almost 9 per cent against a softening market,'' says Declan McNaughton, Managing Director UAE of Chestertons Middle East and North Africa.

Affordable residences, on the other hand, continue to generate solid demand, according to CBRE's Q1 2016 Abu Dhabi MarketView, resulting in modest rental growth of up to 2 per cent. With a continued shortage, rents for lower-priced homes will remain strong.

''Lease rates in areas such as Corniche and Khalidiya remained high with prime rentals for one-bedroom and two-bedroom units currently around Dh120,000 and Dh180,000 respectively,'' says Mat Green, Head of Research and Consulting UAE at CBRE Middle East.


Sporadic buying on the back of property bargains continues to be seen in Dubai, even as strong dollar and unstable oil are putting pressure on institutional buyers. Individual investors continue the anti-speculation trend due to a tight lending environment.

According to Cavendish Maxwell, Dubai apartment prices declined by 3 per cent on average in the first quar ter. Over a 12-month period, apartment prices declined by an average of 7 per cent, with the highest drop of 11 per cent in International City compared with 5 per cent in Jumeirah Beach Residence.

Analysts say many tenants are now considering buying, even though apartment rents have declined up to 4 per cent in Q1 2016. ''Prices have declined at a faster rate than rents,'' says Cavendish Maxwell.

According to ValuStrat's Q1 Dubai Real Estate Market report, there were minute indications of an early recovery in some areas measured by its index, signalling that property values may be bottoming out. ''Dubai's apartment market has shown a slight quarterly improvement in values, up 0.1 per cent, while the villa market saw values marginally decline by 0.2 per cent. The median apartment value in March was Dh14,198 per square metre and Dh14,650 for villas,'' says ValuStrat.

Chartered surveyor and property consultant Land Sterling notes ''a trivial albeit negative sentiment in apartment sales'', which recorded a quarter-on-quarter decline of 0.6 per cent on average. ''Dubai Sports City witnessed the highest price fall at 15 per cent, completely wiping off the year-on-year price gains achieved since last year,'' Land Sterling's report states.

A fresh supply of residential villa has provided end users with more choices. Cavendish Maxwell says approximately 4,600 residential units have been completed in the first quarter, 10 per cent of which were projects delayed from last year and mainly located in Jumeirah Village Circle, Dubailand and Mohammad Bin Rashid City. Approximately 44 per cent have been apartment units, 38 per cent town houses and the rest villas.

''The completion of phases one to four of Reem Mira villas in the first quarter brought an additional 1,582 units, with phase five expected to be completed at a later date this year, with an additional
316 villas,'' Land Sterling states in its report.

Land Sterling lists IMPZ and Dubai Sports City as the only communities to have maintained positive year-on year gains in the first quarter. At the other end, Downtown Dubai, Dubai Marina and Discovery Gardens registered the steepest year-on year price fall in the range of 9-10 per cent.