Dubai’s residential rents have stabilised in the second half of 2014, growing seven per cent year-on-year in 2014, compared to a growth of 24 per cent in 2013, a new report showed.
According to the latest report from real estate consultancy CBRE, over 20,000 new units are expected to enter the market over the next 12 months putting a deflationary pressure on sales and rental rates.
But despite such a large supply pipeline, affordable options will be in demand as the flight to affordability continues, the report added.
“It (Dubai) is a very fragmented market. Some areas might continue to see a growth in demand due to its location while others might see a decline,” said Mathew Green, head of research and consultancy at CBRE, Middle East.
Although he expected rents and sales prices at affordable locations to hold up, Green cautioned that many areas could see a fall in rents if they surpass the consumers’ threshold to pay.
The majority of new supply is forecast to come in areas such as Dubailand, Jebel Ali, Meydan and Mohammed Bin Rashid City, many of them falling in the high end criteria.
Dubai’s real estate scene has also seen a number of new property launches over the year. But compared to rents, it has only slightly affected the property sales prices this year, CBRE noted.
“Over the past 12 months the sales segment has comprehensively outperformed the rental market, recording an 18 per cent growth year-on-year as compared to 30 per cent in 2013,” said Green.
“This disconnect is highlighted as a potential area of concern for the market, with mounting pressures on rental yields as a result. However, despite the slowdown, the market continues to see strong occupier and investment demand for well located, good quality residential apartment buildings, a fact backed up by recent transaction numbers in the established community locations.
“Over the course of the year, the residential market has progressively slowed with transaction volumes well down on 2013 performance. Whilst values have grown steadily during the period, the growth is just a fraction of the 30 per cent growth achieved last year.”
But a slowdown in price growth should not be interpreted as signs of a decline, he said.
“The market is still functioning and we are seeing more stability than hyperinflation,” said Green.
Government interventions in the form of mortgage caps and a hike in property registration fees have had an impact on sales with volumes slowing down, he added.
However, officials could do more to regulate the off-plan market since the emirate’s real estate industry is prone to speculation, Green said.