DUBAI RESIDENTIAL MARKET UPDATE. Core Savills Research Q3 2017

Transcription

1 DUBAI RESIDENTIAL MARKET UPDATE Core Savills Research Market performance Supply dynamics Off-plan offer and demand

2 CONTENTS Foreword Sales Market Performance Spotlight-Transaction Activity Spotlight-Cityscape Rental Market Performance This publication This document was published in October. data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. We have used a standard set of notes and abbreviations throughout the document. 2 3

3 DUBAI RESIDENTIAL MARKET UPDATE Foreword Sales Market Performance As we enter the final quarter of, a year in which most market players expected the residential market to bottom out, there remains a clear lack of direction. Despite higher year-on-year transaction volumes, uncertainty and concerns of oversupply have produced divergent sale price trends and further market fragmentation between performing and non-performing communities. Widespread drops in rentals have resulted in further yield compressions across multiple districts. Most prime and upper mainstream core locations remain healthy on the back of a maturing market segment and a relative balance between offer and demand. lower segment, however, has witnessed a slew of handovers and new off-plan launches, which have escalated in the past few quarters. Downward pressure on rents may increase in this segment in the mid-term as prospective demand among tenants for these units remains uncertain. In a fast-changing market, this quarterly update charts transaction volumes and identifies drivers of supply and demand in secondary and off-plan segments, revealing indicative trends in their impacts on market performance. Supply Polo Residence Apartments in Meydan City. Several notable villa developments were also completed in, including Arabian Ranches Lila and Rosa Villas, Phase 1 of District One and Villa Lantana in South. mid-market segment accounted for slightly more than half of total delivered units across both apartments and villas. We conservatively estimate a further 5, units will be delivered by the end of the year in line with our annual forecast of 17,8 units, largely in the mid-market segment. Number of units 7, 6, 5, 4, 3, Delivery of units - It is becoming increasingly difficult to identify a clear trend in sales prices, particularly for mainstream villa and apartment areas. While the ready sales market is largely driven by end-users, off-plan sales are favoured by investors, particularly below the AED 1 million price point. Most off-plan units are launched below this level in outer areas and are being absorbed relatively well by investors thanks to attractive payment plans. However, this is also contributing to systemic risk as the future rental demand for such products remains uncertain while shorter building lifecycles and maintenance issues may also further soften total returns on such investments. 3.9% 2.5%.4% Apartment sales prices: vs. Business Bay Views Greens Marina Palm Discovery Gardens DIFC Downtown Deliveries in were significantly higher than the previous quarter, amounting to 5,95 units compared to 3,5 in. This spike in deliveries can be attributed to the completion of several sizeable developments over the summer, some of which were delayed from and the Ramadan period. Apartments accounted for just over 8% of total delivered stock, with prominent deliveries including Duja Tower on Sheikh Zayed road, few deliveries on the Palm, phases of City Walk Apartments and the 2, 1, (E) Source: Core Savills research Village Sports City JLT -.6% -.7% -1.2% -1.5% -1.8% -3.8% -4.7% Apartments vs. Villas - Supply by segment - Villa sales prices: vs. -5.6% 2% 8 % 2% 28% 5.1% 2% 1.6% 1.5% Lakes Sports City Palm Springs and Meadows Park Islands 52% Village Arabian Ranches Emirates Hills -.2% -.4% Affordable Villas Apartments Mid-market Prime Source: Core Savills research -2.5% -3% Note: Affordable: Below.6 million for a studio/1 bedroom and below 1 million for a 2 bedroom unit. Mid-market: million for 2/3 bedroom apartments and million for villas. Prime: Above 2.5 million for 2 bedroom, above 3 million for 3+ bedrooms for apartments and above 3.5 million for villas in central locations. All prices in AED. Source: Core Savills research -5.5% -5.7% 4 5

4 SALES MARKET PERFORMANCE Villa Sales Apartment Sales handover of new villas has raised average prices in some areas; this is particularly apparent in and Arabian Ranches, where prices increased 2% with the introduction of newer phases. Similarly, large transactions of new or refurbished villas on the Palm have seen average prices in the area decline by only 2.5%, although older sub-par stock has fallen further in value. Village registered a 5% increase in prices due to the addition of new, higher quality developments and attractive payment schemes. Prices in Springs and Meadows fell slightly as demand shifted to recently completed phases of Arabian Ranches and Mira. Further steep declines in this submarket are unlikely as end-user demand remains steady due to its central location and proximity to schools and community facilities. only areas to register visible price declines were Islands and Park, both dropping almost 6%. A 2% price increase was recorded in Emirates Hills. However, this is mostly attributed to a few major transaction that offset the otherwise stable prices in the area. Apartment sales remain fragmented. Areas such as Business Bay, Lakes Towers and the Views registered only a 1% drop due to consistent demand for core locations and proximity to office clusters. Meanwhile, and Sports City saw marginal increases of 2% and 3%, respectively, most likely as a result of new launches at higher entry points. Village saw the most significant increase in apartment sales prices at 4%, largely as a result of the recent hand-over of new higher priced developments such as Belgravia and Park One. Growing community infrastructure in the area has also contributed to the demand for these units. Prime areas such as Downtown declined the most, falling 6% as increasing competition from off-plan units at lower entry points undercuts secondary market prices. Conversely, Marina and to some extent Palm benefitted from an opposing trend due to increasing competition from off-plan apartment deliveries launched at higher entry points. Many investors opted for ready units at lower prices which buoyed overall declining prices and registered only a 2% drop. Movement in the secondary sales market is largely driven by end-users, while investors account for most off-plan sales, particularly below the AED 1 million price point. Prime apartments Prime villas Index base % (1 = Sept. ) DIFC Palm Marina Downtown Index base % (1 = Sept. ) Emirates Hills Palm Park Islands Mainstream apartments Mainstream apartments Index base % (1 = Sept. ) Sports City Village Discovery Gardens Business Bay JLT Views Greens Index base % (1 = Sept. ) Spring and Meadows Arabian Ranches Sports City Lakes Village 6 7

5 TRANSACTION ACTIVITY Off-plan vs. secondary sales Cityscape and its impact Transactions during Cityscape* total volume of transactions to date in is visibly higher than in. Sales transactions for built units have increased by a modest 7%, but have been overshadowed by a 62% increase in off-plan sales. Despite this spike in off-plan transactions, average unit value in this segment fell by 11% compared to last year. This further illustrates developers current strategy of bringing lower entry products to the market while competing on prices. Instead of adjusting supply to demand, a few developers are taking the risk of adjusting prices, in some cases by offsetting quality or shrinking their margins. This brings a significant amount of lower quality stock to the market which may find short-term investor take-up on the back of lucrative payment plans, sometimes aided by the high level of marketing spends. If sales and tenant demand for such products has been overestimated, this may not be sustainable in the long term. This trend also affects the secondary sales market, artificially reducing prices as individual landlords try to keep pace with off-plan prices that are bringing area averages down and dampening recovery. Marina was the only exception to this trend, with recently launched off-plan units within the prime market segment driving investors to opt for cheaper units in the secondary market. Number of transactions 1,8 1,6 1,4 1,2 1, 8, 6, 4, 2, Residential transactions Average unit value (in AED million) re-introduction of on-site transactions after a 1-year absence at Cityscape Global, held on September 11 13, saw a surge in off-plan sales, doubling the number of transactions recorded in September. Ready unit sales, however, were 9% lower than the same period in. high number of accommodating payment plans on offer for off-plan units may have served to encourage this rise in transactions, particularly among investors. However, such plans most likely do not offer significantly increased investment values and may even mislead the market by generating a false sense of recovery. Note: *Actual totals may record slightly higher values given that the process to register Oqood transactions can take longer for smaller developers. Number of transactions 2 1,8 1,5 1,4 1,2 1, Sources: REIDIN; Core Savills research. Off-plan sales Ready sales Looking at individual submarket performances, Village saw off-plan transactions double over the previous year, with Park One, One and Belgravia witnessing robust absorption. Similarly, and Al Furjan saw both higher off-plan sales fed by investor demand, and steady sales of ready units particularly newly delivered units. Ready sales - - Sources: REIDIN; Core Savills research. Off-plan sales Average unit value Average unit value Off-plan vs. ready sales: - / - 4, 3,5 Number of transactions 3, 2,5 2, 1,5 1, 5 Downtown Sports City Marina Village Al Furjan Sources: REIDIN; Core Savills research. - Ready transactions - Ready transactions Off-plan 8 9

6 RENTAL MARKET Widespread decline in rents As per our predictions at the beginning of the year, rental contractions have been evident throughout across the 19 districts we monitor. As sales prices have not dropped at the same rate, yield compression has been witnessed across most areas and is expected to continue in 218. This trend emerged as a recurring theme in the findings of our Residential Sentiment Survey, which highlighted the potential for further softening of the rental market, particularly as tenants who have not yet seen their rent decrease approach their lease renewals. We expect the next cycles of renewals to result in rent reductions and tenant relocations, leading to modest falls in overall market averages over the next months. Villa rents Villa rental rates across continue to fall, most visibly in prime areas. lagging impact of budget reductions has encouraged some higher income households to seek lower rents. Palm saw the largest year-on-year decline at 8%, as tenants negotiated lower rents or moved to other prime areas such as and Al Barari. Similar movements were seen in Emirates Living developments such as Springs, Meadows and Lakes, which saw rental rates fall by 6 7%. extent of the decline in rental rates has not been reflected in sales prices, however, leading to yield compressions of as much as 5-7 base points yearon-year, depending on the product. Given the age of villas in these areas, and that they commonly require refurbishment, tenant demand has leaked to outer developments such as the newer phases of Arabian Ranches and Mira, which offer lower rents and newer build quality. Meanwhile, demand for larger villas has shifted to communities such as Park and Islands, which have seen drops of 15 2% from their peak values. Arabian Ranches saw rents decline by almost 6% as new phase deliveries have maintained downward pressure on rents. At the lower end of the villa rental market, Village saw a 6% decline, most likely due to tenants negotiating lower rents due to the notably high running costs in the area (such as DEWA charges) and maintenance issues related to large plot sizes. Rents in have remained both competitive and comparatively stable, experiencing a slight dip of 1% year-on-year. Apartment rents Overall, apartments registered broader rental contractions than villa districts. core submarkets of Marina and the Palm were the weakest performers, with rents dropping by 1% year-on-year. Occupiers across these areas either negotiated lower rents or chose to move to cheaper comparable units. Landlords also undercut rents to attract tenants, resulting in significant migration between these districts and consistent rental declines. Rents in Village also fell noticeably, recording a 7% drop. While the handover of new, higher quality units contributed to resilient sales prices, rents continued to decline due to weak tenant demand and increased competition between old and newer units. This district saw the highest yield compression of nearly 1 base points for both villas and apartments as rents and sales prices followed opposing trajectories. Due to weak tenant demand, many landlords in this area now offer tenants attractive payment options such as 12-cheque rent instalments or one month rent-free. Similarly, rents in Downtown fell by around 6% as new developments in neighbouring areas were handed over, offering tenants more options. City Walk apartments absorbed some of this rental demand and are likely to gain more traction as the community reaches higher occupancy levels. Villa rents: vs. Apartment rents: vs. Emirates Hills Arabian Ranches Lakes Springs and Meadows Village Palm Discovery Gardens JLT Sports City Marina Business Bay DIFC Downtown Views Village Greens Palm -1.4% -2% -2.2% -3.3% -3.5% -3.9% -4.8% -5% -5.5% -6.2% -5.8% -6.9% -7.2% -6.8% -6.9% -7.1% -8% -9.8% -8.6% Source: Core Savills research. Source: Core Savills research. 1 11

7 MARKET FORECAST OUTLOOK Residential districts recorded YTD forecast We have extended our forecast for ongoing rental softening into next year. viscosity in rental drops is leading the market to continue adjusting downwards an effect that will persist as the next cycles of lease renewals inspire relocations, particularly among tenants whose rents are yet to reflect the softening market. Although widespread, the magnitude of these drops is expected to remain limited. Against this challenging rental backdrop, further yield compression is anticipated. While the underlying fundamentals for this compression vary significantly by segment, the bottom market segment is expected to suffer most owing to insufficient future tenant demand. By contrast, the upper mid-market and prime segments will likely witness yield compression caused by a gradual stabilization and recovery in prices combined with stronger resilience in rentals in the mid-term. As highlighted in our sentiment survey, lower income occupiers remain hesitant to buy, whilst investordriven demand keeps off-plan sales buoyant albeit with developers increasingly competing on price points. Nevertheless, anecdotal evidence suggests a mismatch between affordable stock and the requirements of prospective home owners; while studio and 1-bed units appeal to investors, end-user demand is for smaller 2-bedroom units at similar entry prices We predict this imbalance between off-plan offer and end-user demand to create further strain in price and rental recovery in the outer areas. Investors continue to take advantage of lucrative payment schemes to acquire products that are potentially overvalued, as tenant demand for such units may not be sufficient to sustain yields. Although we anticipate the number of proposed units and actual hand-overs to vary notably, we expect developers to continue building in the run up to 22, creating a significant surplus in the lower end of the market that does not adequately address the needs of target end-users. Despite stronger regulations being in place, we continue to view increasing off-plan activity with caution, particularly given its detrimental effect on ready sales that fuels further systemic market risk. Villas Prime villa locations Mainstream villa locations Emirates Hills Palm Al Barari Lakes Springs and Meadows Arabian Ranches Village Palm Prime apartment locations Marina Downtown Freehold Palm Apartments Marina Business Bay Mainstream apartment locations JLT Discovery Gardens Village Bright Mostly bright outlook with partial deterrents Mixed outlook, many deterrents Cloudy outlook Upward revision Downward revision 12 13

8 Other Market Segments Market CORE: THE UAE ASSOCIATE OF SAVILLS RECENT MARKET LEADING RESEARCH PUBLICATIONS RESIDENTIAL SENTIMENT SURVEY Core Savills Research Edition ABU DHABI MID-YEAR SNAPSHOT Core Savills Research August er Market Segments Market er Market Segments Market Residential Sentiment Survey Edition Abu Dhabi Mid-Year Snapshot August Residential Market Update Over 7 offices and associates worldwide 62 Offices Americas & Caribbean 135 Offices UK, Ireland & Channel Islands 13 Offices Europe 272 Offices Middle East & Africa 134 Offices Asia Pacific THE GREEN ISSUE Sustainability and Wellness in Sustainability in the story so far DUBAI OFFICE MARKET SPOTLIGHT Prime and secondary May DUBAI RESIDENTIAL MARKET UPDATE Segment Performance Evolution Wellness at workplace Upcoming demand trends Supply and Demand Dynamics As one of the largest UAE property services firms, Core, the UAE Associate of Savills, combines expert local market insight with the international strength provided by over 7 offices worldwide. Core s multi-lingual advisers share an entrepreneurial spirit and a commitment to cultivating long-term, collaborative client relationships. Our local roots, and attention to detail are backed by the global experience and standards of Savills 16-year-old brand, giving our clients direct access to 3, experienced practitioners, with a deep understanding of specialist real estate services in over 6 countries. Prathyusha Gurrapu Senior Manager - Research and Advisory prathyusha.gurrapu@ Sustainability Green Issue Sustainability and Wellness in as a global commercial investment destination Office Market Spotlight May Sales and Rental Market Analysis Ready and Off-plan Transaction Analysis Residential Market vs. World Cities Residential Market Update Our bespoke residential and commercial property advice enables our clients to make informed real estate decisions both locally and abroad, Through a single point of contact in one of our three offices (Downtown, Lakes Towers or Abu Dhabi), we offer comprehensive advice in any of the 15 languages spoken by our team of experienced consultants. Aruba Khalid Assistant Manager - Research and Advisory aruba.khalid@ DUBAI RETAIL REVIEW Supply and demand dynamics ABU DHABI MARKET REVIEW - RESIDENTIAL MARKET SUMMARY DUBAI PROPERTY REVIEW AND BEYOND This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Core, the UAE Associate of Savills, accepts no liability whatsoever for any direct or consequential loss arising from its use. content is strictly copyright and is full or partial reproduction is prohibited without written permission from Core s research team. Core Real Estate Brokers. Edward Macura Partner - Head of Residential edward.macura@ retail vs other global cities Upcoming retail trends Looking ahead Retail Review RESIDENTIAL OUTLOOK OFFICE MARKET REVIEW AREAS TO WATCH Abu Dhabi Market Review - RESIDENTIAL MARKET SUMMARY OFFICE MARKET SUMMARY AND BEYOND Property Review and Beyond 14 15

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