Report Highlights. Residential Market Q Snapshot -3% +21% -2% +5% +10% Valuations Mortgage and Secured Lending Portfolio Valuations

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1 OBSERVER Dubai Market Report Q2 / 2018

2 Services Report Highlights Valuations Mortgage and Secured Lending Portfolio Valuations Affordability is one of the key real estate trends being realised in 2018 and hence is a core theme in this report. With a large amount of supply set to enter the market, developers need to focus on catering to the largest and most active sectors, namely the midincome segment. To keep ticket prices of residential property affordable to this audience, developers have been offering competitive payment plans, as well as reducing unit sizes. This trend is already being seen in locations such as Dubailand, Dubai South, Al Furjan and Jumeriah Village Circle. Advisory and Research Financial Feasibilities Highest and Best Use Studies Market Research Conceptual Advisory and Project Positioning Studies Project Redevelopment/Repositioning Advisory Investment Strategies Acquisition and Disposal Sales and Leasing Commercial Industrial Residential Retail Property/Facilities Management Commercial MixedUse Residential Sales Prices The downward price corrections witnessed in Q1, continued throughout Q2. Average apartment sales prices are down 1% from the last quarter, whilst average villa sales prices have remained unchanged. Offplan sales, particularly in the midmarket segment, continue to dominate the market due to flexible and affordable payment plans turning many renters into buyers. International Properties London OffPlan Residential International Homes and Investments International Relocations Rental Prices Downward rental adjustments continue to take place in the Dubai market, due to several factors; additional stock being delivered thus providing more choices, some tenants purchasing their own properties due to the current affordability and conservative market sentiment. Average apartment rents are down 4% from the last quarter and average villa rents are down 2%. Transactions The number of completed (ready to move in) unit transactions decreased by 3% from the previous quarter, with a 21% increase in transaction value, indicating a lower volume of sales but for a higher ticket size. For offplan units, transactions increased by 5% from the previous quarter, with a 1 uplift in values. Market Outlook The watchword for 2018 is supply. Whilst the UAE is still experiencing population growth, property supply, however, is growing at a higher percentage than the population. This means the real estate market will most likely continue to soften throughout the rest of Residential Market Q Snapshot Price Movements QoQ Ready Units Transactions Volumes Values 1% 3% +21% Rental Movements QoQ OffPlan Units Transactions Volumes Values 4% +5% +1 The Observer Dubai Residential Q

3 Offplan residential sales continue to dominate the market. Residential Sales Prices and Quarterly Change 5% 4% The downward price corrections witnessed in Q1, continued throughout Q2. Average apartment sales prices are down 1% from the last quarter, whilst average villa sales prices have remained unchanged. residential prices picked up, owing to its good location and the fact investors are seeking alternatives to the higher priced Downtown and DIFC areas. AED SALES PRICES ,205 2,298 1,204 1, % 2% 1% 1% The continued decrease in apartment prices over the last few years has made the bigger units more affordable, hence there has been a lower number of transactions but a higher value of transactions. Offplan sales, particularly in the midmarket segment, continue to dominate the market due to flexible and affordable payment plans turning many renters into buyers. Arabian Ranches Jumeirah Park Palm Jumeirah The Lakes The Meadows/ The Springs Q Q QoQ Movement 3% Larger villas with high price points have generated limited interest from buyers, mainly due to the lower investment yields attached to this type of property and currently the main focus is on affordable units. Residential Sales Prices and Quarterly Change HOT TOPIC After the surge in offplan sales last year, Dubai regulators have proposed a policy whereby property developers will need a project to reach 50 per cent completion before they can commence offplan sales; currently the law stipulates only 20 per cent completion is required. This has been proposed due to concerns that the attractive payment plans on offer for some projects were leading to a rise in speculative buying. This proposal, if approved, is likely to slow down the pace of offplan launches which could help stem supply in the short term. 8% 1,683 1,680 6% 4% AED SALES PRICES 1,178 1, ,320 1, ,110 1, ,095 1,077 1,386 1,342 2% 4% 6% Discovery Gardens Land Dubai Motor Dubai Silicon Oasis Dubai Sports International JLT JVC The Greens The Views 8% Q Q QoQ Movement The Observer Dubai Residential Q The Observer Dubai Residential Q

4 Supply is outpacing demand which is creating a tenantled market. Downward rental adjustments continue due to several factors; additional stock being delivered providing more choices, some tenants purchasing their own properties due to the current affordability and conservative market sentiment. Average apartment rents are down 4% from the last quarter and average villa rents are down 2%. As opposed to previous quarters, smaller units are also affected. Studio rentals dropped by an average of 5% and 1BR units by 4%. Residential Market Rent and Quarterly Change Prime established locations such as Jumeirah Golf Estates, DIFC and exhibit more resilience when it comes to both apartment and villa rental rates. The focus for developers and landlords going forward should be on quality as tenants will proactively seek out cheaper options or move to better quality units for the same price as their existing units. Residential Market Rent and Quarterly Change AED RENTAL PRICES 450, , , , , , , ,000 50,000 Arabian Ranches The Springs Source: Propertyfinder & Chestertons The Meadows The Lakes Victory Heights Al Furjan JVT Jumeirah Islands 2BR 3BR 4BR 5BR AVG Jumeirah Golf Estates Palm Jumeirah HOT TOPIC With the burgeoning volume of offplan investment stock entering the market that is destined to be made available for rent after handover the ability of the rental market to absorb a high volume of new stock will be tested over the next few years. Newly completed properties that are affordable, in good locations and offer decent facilities will command attention over older more expensive properties, essentially creating a twotier market. 2% 1% 1% 3% 4% 5% 250,000 1% AED RENTAL PRICES 200, , ,000 3% 4% 5% 50,000 6% 7% DIFC Discovery Gardens Downtown Dubai Dubai Silicon Oasis Dubai Sports Dubailand International JLT JVC The Greens The Views Dubai Motor 8% Source: Propertyfinder & Chestertons Studio 1BR 2BR 3BR QoQ Change The Observer Dubai Residential Q The Observer Dubai Residential Q

5 Developers are offering affordable, offplan units to appeal to the growing midincome sector. continued to be the most popular community in terms of completed unit transaction volumes and values while Dubailand dominated the offplan sales market. The number of completed (ready to move in) unit transactions decreased by 3% from the previous quarter, with a 21% increase in 6,000 transaction value, indicating a lower volume of5,000 sales but for a higher ticket size. 4,000 For offplan units, transactions increased by 5% from the previous quarter, with a 1 uplift in values. 3,000 2,000 of Residential Transactions Q Volume HOT TOPIC Developers are increasingly offering competitive pricing and flexible payment plans as well as building smaller sized units at lower costs to cater to the midincome sector. In 2018, 72% of the property transactions accounted for units under 1,000 sq ft, predominantly studio and one bedroom apartments. 1,000 6,000 5,000 Q ,000 Q ,000 2,000 Figures in AED/Sq Ft 1,000 Offplan Ready Properties Q Q Value of Residential Transactions Q ,000 5,000 Ready Properties Offplan 4,000 3,000 2, ,000 Q The Observer Dubai Residential Q Q Ready Properties 5.69 Offplan The Observer Dubai Residential Q

6 Sales Transactions Completed Units Sales Transactions Offplan Units Top 10 Areas Based on Transaction Volumes Top 10 Areas Based on Transaction Volumes Dubai Sports International Emirates Living Palm Jumeirah Al Furjan Jumeirah Lake Towers Meydan MBR The Lagoons Dubai South Al Quoz Top 10 Areas Based on Transaction Values (in million AED) Top 10 Areas Based on Transaction Values (in million AED) Palm Jumeirah Emirates Living Al Furjan Arabian Ranches Dubai Sports ,000 The Lagoons MBR Meydan Al Quoz Jumeirah Bay Island The Observer Dubai Residential Q The Observer Dubai Residential Q

7 Contact Us Nick Witty, BSc (Hons) MRICS Managing DirectorMENA Adam Wilson BSc (Hons) MRICS ACIArb Director, Head of International Valuations Vladimir Cvetinovic, MRICS Associate Director, Valuations & AdvisoryAUH Ivana Gazivoda Vucinic Head of Consulting Head of Valuation & Advisory Operations Ellen Sleutjes Head of Property ManagementUAE Mena Head Office 1802, Blvd. Plaza Tower 1 Sheikh Mohammed Bin Rashid Blvd. PO Box 28336, Dubai United Arab Emirates Office Fax uae.enquiry@chestertons.com Dubai Office 106, Rasis Business Center, Al Barsha 1 PO Box , Dubai United Arab Emirates Office dubai@chestertons.com Abu Dhabi Office Office M01, Mezzanine Floor Al Ghazal Building (Above Al Hilal Bank) Khalifa Park PO Box , Abu Dhabi United Arab Emirates Office Fax abudhabi@chestertons.com Disclaimer: All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valuations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, materials presented is subject to errors, omissions, changes, or withdrawal without notice.