Dubai’s real estate sector registered a slowdown in rents and sales prices during the third quarter of the year, marking further stabilisation in the market, according to Asteco’s Q3 2014 report.
Average apartment and villa rental rates dropped by two per cent and three per cent respectively compared to second quarter figures. Although apartment rents in the popular Palm Jumeirah rose three per cent, rates in Downtown Dubai and Jumeirah Lakes Towers (JLT) remained flat quarter-on-quarter, with Dubai Marina recording a two per cent drop.
“The popular Dubai Marina, which has suffered from long-term construction and traffic congestion woes, saw a two per cent decline since Q2 2014, as tenants look to relocate to more accessible areas,” said John Stevens, managing director, Asteco.
However, year-on-year rental growth remained high, with most areas posting double-digit increases.
While localities such as Palm Jumeirah and Sheikh Zayed Road saw average apartment rates rise by 21 per cent in Q3 2014 compared to Q3 2013, the rise was higher in Jumeirah Lakes Towers (42 per cent) and Dubai Marina (36 per cent).
Affordable communities such as Discovery Gardens and International City saw quarter-on-quarter values down seven per cent, although year-on-year rates were up 23 per cent and 40 per cent respectively.
This implies that many tenants are still likely to be subject to rental increases as per the RERA rent index, potentially leading to further relocations to the Northern Emirates, the report said.
“However, it is anticipated that this trend will start to slow down as occupancy levels in the city’s more affordable communities stabilise,” it added.
In the villa segment, rents in Springs were down by eight per cent quarter-on-quarter and dropped five per cent in Arabian Ranches and Mirdif in Q3.
“These rent reductions came as a result of previous growth, combined with a significant amount of new supply entering the market in new communities such as Jumeirah Village and Dubailand, attracting many tenants away from established communities that appeared overpriced,” the report said.
A three-bedroom villa in Arabian Ranches is renting for up to Dhs260,000 per annum, while the same in Jumeirah Village is available for Dhs145-180,000.
However, year-on-year rental increases remained high at Jumeirah (35 per cent), Springs (14 per cent) and Arabian Ranches (13 per cent).
SALES VALUES DROP Q-ON-Q
In terms of sales, average prices fell one per cent and four per cent for apartments and villas respectively in Q3, compared to Q2 2014.
Apartment prices dropped eight per cent in Dubai Marina, five per cent in Palm Jumeirah and two per cent in Downtown Dubai.
“For the first time since 2012 we have seen both residential rental rates and sales prices decline as a result of a natural adjustment to ongoing new supply entering the market,” said Stevens.
“The impact of mortgage cap and higher transaction fees is also making it more expensive for prospective buyers to get onto the Dubai property ladder.”
However, on a year-on-year basis, sales values registered strong growth at 31 per cent and 17 per cent for apartments and villas respectively in the third quarter of 2014.
In terms of apartment sales, Jumeirah Lakes Towers (JLT) and Downtown Dubai saw the highest increases at 37 per cent and 35 per cent respectively, with units priced at up to Dhs1,500 and Dhs3,000 per square foot respectively.
Meanwhile villas within the Al Furjan development, located on the Mohammed bin Zayed corridor, and on Palm Jumeirah, recorded 38 per cent and 55 per cent year-on-year growth respectively.
With 27 new projects announced at Cityscape, Asteco anticipates sales prices may soften further in Q4 2014 as new supply enters the market.
“It’s a wait-and-see scenario on the part of buyers right now, and we believe that sales prices may soften further with more new supply on the way,” said Stevens.
“In the short term, a price reduction will be beneficial for the market as it will assist in unlocking demand from the middle income segments of the population.”
The report added that with the overall economy and market fundamentals appearing “solid”, a continuous inflow of new demand implied that the correction is more of a natural supply / demand adjustment cycle, rather than a market depression as witnessed in 2008.