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Dubai residential prices will continue to soften

Despite a bullish mid-term outlook, sales and rental prices within Dubai’s residential sector will continue to fall in 2016 and 2017, according to Core UAE

Core UAE's David Godchaux (above) expects the softening to make Dubai's residential sector more interesting for renters who are considering ownership.
Core UAE's David Godchaux (above) expects the softening to make Dubai's residential sector more interesting for renters who are considering ownership.

Sales and rental prices within Dubai’s residential sector will continue to soften in 2016 and 2017, but stabilising factors will support a more bullish mid-term outlook.

These are the findings of the latest research conducted by Core, UAE associate of Savills.

Core UAE’s Q1 2016 residential report shows that prices and rentals fell last year, and predicts that they will continue to soften over the next 12 months.

Villa rental rates dropped by between 2% and 8% in 2015, whilst prime apartment districts – such as Dubai International Financial Centre (DIFC) and Jumeirah Beach Residence (JBR) – experienced rental falls of approximately 4%.

Commenting on the report’s findings, David Godchaux, CEO of Core UAE, said: “The decline in prices at a quicker rate in comparison to rents has resulted in increasing yields and we expect this to continue for the best part of 2016, making it more interesting for renters to consider ownership and for investors to re-enter the market at lower prices and higher yield levels.”

According to the report, downward pressure on Dubai’s residential market will continue as a result of the falling oil price, a generous supply pipeline, the strengthening dirham against a range of traditional investor economies, and uncertainty within the Middle East.

“This has very much been a self-fulfilling prophecy until now, where most investors believe the market should see another six months of price declines, which in itself has translated and still translates into more downward pressure,” noted Godchaux.

“Reversely, we are now witnessing a growing pool forming of investors and renters who are anticipating a balance in price and increase by the end of 2016, which is a strong stabilising factor, as many have shown they are ready to transact now if they believe that the price is right,” he added.

Approximately 8,000 residential units were delivered in 2015, compared to the figure of 25,000 originally projected for completion. It is estimated that between 9,000 and 10,000 units will be delivered this year; a slowdown that will help moderate potential oversupply, according to Core AUE.

Indian nationals topped the list of expat real estate buyers in 2015, with UK citizens in second place and Pakistanis third.

GCC buyers, who accounted for 34% of total real estate investment in Dubai in 2015, made average transactions in the region of $817,000 (AED3m) to $1.1m (AED4m). Average transaction values of ‘other Arabs’ and expatriates typically ranged from $490,000 (AED1.8m) to $681,000 (AED2.5m).

“The market has matured over the last few years,” concluded Godchaux. “What we’re witnessing as a result of the price softening is the emergence of healthy real estate cycles dominated by players with a longer investment horizon.”

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