Dubai – Mubasher: The Dubai real estate market is expected to "bottom out" before the end of 2017, a new report by international real estate consultancy Cluttons showed.
The report released Sunday indicated that the "bottoming out" will be due to the slowing rate of decline across all of the emirate's real estate sectors, which will also result in increasing stability.
"Despite the persistence of market corrections in Q1 2017, average residential prices have moderated by 0.9% with the annual rate of decline slowing from -8.8% at the close of 2016 to -7.8% at the end of March," according to Cluttons’ Dubai Spring 2017 Property Market Outlook.
The increase in supply alongside the change in demand for executive positions in the employment market and the increase in rent moderation are all expected to continue to affect the residential market during 2017, Cluttons said, noting that the planned introduction of the value-added tax (VAT) on 1 January 2018 is "causing a nervousness amongst existing tenants", particularly in Dubai's office market.
"Values across Dubai’s freehold residential areas slid by 8.8% in 2016, largely in line with Cluttons’ original forecast for the year of -10%. This signals the market’s weakest annual performance in five years, and sits 28.7% below the Q3 2008 market peak," according to the report.
Commenting on the residential market, Faisal Durrani, Cluttons' head of research, stated: “While local economic drivers may appear robust, regional and global economic uncertainty has undoubtedly curtailed domestic growth. Despite this, the off-plan residential sales market has remained resilient and in fact accounted for 53% of all deals in 2016, suggesting that investor confidence remains strong."
This resilience was supported by "exceptionally favourable payment plans" that extend beyond handover and negate the need for financing from the get-go, in addition to attractive gross rental yields, he added.
Moreover, in spite of the emerging focus on the residential investment market, tenant demand "remains mute" and has undoubtedly eased over the last 12 months, contributing to a 9.9% decline in average rents in 2016, the official said, according to the statement.
"The rate of creation of senior level executive positions has fallen and this is reflected in the lower level of enquiries and budgets we are recording. The redundancy programmes in the city’s finance and banking sector and oil and gas sector have all but run their course, but the weak global outlook is putting other key sectors under pressure, including the hospitality and aviation sectors, both of which are long-standing and historic cornerstones of economic growth. The rapid and sudden strengthening of the US dollar over the last nine months has added to the challenges faced by the property market,” he added.
Cluttons highlighted that part of the overall market weakness lies at the top, with 12 of the 32 submarkets monitored by Cluttons registering price drops during the first quarter of 2017, with the Burj Khalifa tower, down 6.9%, leading the price falls.
"Over the last 12 months, the Burj Khalifa has registered a 25% correction in values, making it the weakest performer across the city. Hattan Villas at The Lakes (-13.5%), Hattan Villas at Arabian Ranches (-12.6%), villas on the Palm Jumeirah (-12.3%), and apartments on the Palm Jumeirah (-11%) rounded off the list of the five weakest performing markets over the last 12 months," the Cluttons report found.
