OBSERVER Dubai Market Report Q3 / 218
Services Valuations Mortgage and Secured Lending Portfolio Valuations 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 Report Highlights The performance of Dubai s residential market during the third quarter of 218 has seen a further decline in both sales and rental values, in keeping with the trend of previous quarters. The time of year, coupled with general market uncertainty has had an adverse effect on the number of transactions concluded. However, the key trend we have witnessed this quarter is that the market for completed units has been more resilient to the decline in transactional volumes and values compared with the off-plan market. Property/Facilities Management Commercial Mixed-Use Residential Sales Prices The downward price corrections witnessed in Q1 and Q2 of 218 have continued throughout Q3, albeit at an increased pace. Average apartment and villa sales prices are down 6% from the previous quarter, which is one of the biggest quarterly price declines seen since 214. Furthermore, during Q3 there was a higher decline in off-plan sales as opposed to completed units. This sentiment was echoed at scape Global where, it was clear, there were less high profile launches compared with previous years, with many developers launching new phases within existing schemes. International Properties London Off-Plan Residential International Homes and Investments International Relocations Rental Rates As in previous quarters, there has been continued downward pressure on rents in Q3. This is a consequence of additional supply being added to the market, thus offering more choice to Sales and Leasing Commercial Industrial Residential Retail potential tenants. The apartment market saw a 4% fall in rents from Q2 with a 3% drop in the villa market. We expect rental declines to continue over the coming quarters as the pipeline increases. Transactions From Q2 to Q3 218, the number of completed unit transactions decreased by 11%, whilst the number of transactions in the off-plan market decreased by 31% from the previous quarter. Market Outlook Over the last few months there have been a number of announcements from the UAE Government, which are expected to impact the Dubai real estate market. Whilst it is too early to tell how the newly announced retirement visa, company ownership and 1-year residency will affect property owners and tenants, we expect the downward market correction to continue over the next few years. With circa 1, units expected to be delivered to the market by year end and 7, units expected to be delivered before Expo 22, this pipeline will exert further pressure on sales and rental levels. Unless there is a significant decline in construction activity, a boost in population and further economic stimulus created in the short term, it is unlikely the Dubai residential market will reach a demand and supply equilibrium in the foreseeable future. Residential Market Q3 218 Snapshot Price Movements QoQ Completed Units Transactions Rental Movements QoQ Volumes -11% Values -13% Off-Plan Units Transactions Volumes -31% Values -33% The Observer - Dubai Residential Q3 218 1
Residential sales market will not bottom out in the near future The downward price corrections witnessed in Q1 and Q2 of 218 have continued throughout Q3, but at an increased pace. Average apartment and villa sales prices were down 6% from the previous quarter, which is one of the biggest quarterly price declines seen since 214. in areas such as Dubai Silicon Oasis and remained resilient, with only a 2% decline since the previous quarter. The highest declines have been seen in Dubai Marina at 1% and Discovery Gardens at 13%. Market sentiment in the villa communities of The Lakes and Palm Jumeirah have witnessed the lowest price declines of all the areas at 4% and 5% respectively. The biggest declines of 8% were witnessed in Arabian Ranches and Jumeirah Park. During Q3, there was a higher decline in off-plan sales as opposed to completed units. In 217, 66% of all residential transactions were related to offplan units. In 218, this figure dropped to 59 %, so it is clear there has been a shift in buyers interests. The lower number of off-plan launches, coupled with the increased affordability of completed units has motivated some buyers to consider properties that are available to move into immediately. Overall, however, off-plan sales are still dominating the market with buyers enticed by attractive incentives including 5-year post-handover payment plans, rebates of registration fees and guaranteed rental returns amongst others. Given the pace of construction activity witnessed over the last couple of years and the number of units still in the pipeline, it is unlikely prices will bottom out any time soon. It would take policy reforms, a boost in economic activity and a decline in construction activity for supply and demand to reach market equilibrium. We consider this is unlikely to occur within the next 3 to 5 years. Residential Sales Prices and Quarterly Change AED SALES PRICES 25 2 15 1 5 942 923 Arabian Ranches Jumeirah Park Palm Jumeirah The Lakes The Meadows/ The Springs 846 985 96 883 2,25 2,298 Q1 218 Q2 218 Q3 218 QoQ Movement HOT TOPIC As well as offering attractive incentives, another key trend being witnessed in the Dubai residential sales market is off-plan developers decreasing the size of units and catering to a new market segment looking for more affordable housing. By lowering ticket prices, the aim appears to be to increase absorption rates. 2,187 1,24 1,195 1,148 988 991 935 % -1% -5% -7% -8% -9% Residential Sales Prices and Quarterly Change 18 % AED SALES PRICES 16 14 12 1 8 6 4 1,178 1,226 1,166 792 753 652 1,683 1,68 1,643 757 76 74 1,32 1,32 1,192 87 822 75 729 73 716 957 941 875 631 589 566 1,11 1,72 1,27 824 871 831 1,95 1,77 1,33 1,386 1,342 1,272-8% -1% -12% 2-14% Business Bay Discovery Gardens Downtown Dubai Motor Dubai Silicon Oasis Dubai Sports International JLT JVC The Greens The Views -16% Q1 218 Q2 218 Q3 218 QoQ Movement The Observer - Dubai Residential Q3 218 2 The Observer - Dubai Residential Q3 218 3
Biggest rental adjustments being seen in smaller units As in previous quarters, we have continued to witness downward pressure on rents in Q3. This is a consequence of additional supply coming to the market affording potential tenants more choice. In the apartment market average rents have seen a 4% drop from Q2 compared with 3% in the villa market. In the apartment market, the biggest declines have been seen in Discovery Gardens and DIFC at 7% and 6% respectively. Established communities, offering good facilities at affordable rents such as Dubai Motor, The Greens and Dubai Silicon Oasis witnessed small movements with 2% and 3% declines respectively. In the villa market, the biggest rental declines have been seen in Al Furjan at 6% with Palm Jumeriah and Jumeirah Islands at 5%. We expect rental declines to continue over the coming quarters as a consequence of additional supply being added to the market. Generally, tenants are seeing better value for money and greater levels of availability in the mid-market sector and are either negotiating better rents with current landlords or moving to newly handed over developments with competitive pricing and a strong focus on community facilities. Residential Market Rent and Quarterly Change AED RENTAL PRICES 45, 4, 35, 3, 25, 2, 15, 1, 5, - Arabian Ranches The Springs Source: Propertyfinder & Chestertons The Meadows The Lakes Victory Heights Al Furjan JVT Jumeirah Islands Jumeirah Golf Estates 2BR 3BR 4BR 5BR QoQ Movement Palm Jumeirah HOT TOPIC Declines appear to be most prevalent in smaller apartments. Across the board, studio rents declined by 6%, while 1BR and 2BR units declined by 4% and 3BR units declined by 3%. In the past, smaller unit types have been more resilient. However, due to increasing stock these units are becoming more volatile. Similar adjustments can be observed in the villa market. % -1% -5% -7% Residential Market Rent and Quarterly Change 25, % -1% AED RENTAL PRICES 2, 15, 1, -5% 5, -7% - Business Bay DIFC Discovery Gardens Downtown Dubai Dubai Silicon Oasis Dubai Sports International JLT JVC The Greens The Views Dubai Motor -8% Source: Propertyfinder & Chestertons Studio 1BR 2BR 3BR QoQ Change The Observer - Dubai Residential Q3 218 4 The Observer - Dubai Residential Q3 218 5
Ready unit transactions showing a stronger resilience than off-plan in Q3 Overall, the completed units market has exhibited greater resilience to the decline in transactional volumes and values in Q3 compared with the off-plan market. From Q2 to Q3, the number of completed unit transactions decreased by 11%, whilst for off-plan units the number of transactions decreased by 31% from the last quarter. Transactions involving completed properties totalled AED 15.35 billion between January and September 218, while off-plan transactions totalled AED 17.14 billion. However, the decrease in value 6, of off-plan transactions from Q2 to Q3 was 33% which is in stark contrast to the period Q1 to Q2 5, 218 where there was a 1% uplift in values. continued to be the most popular community in terms of completed unit transaction volumes and Emirates Living in terms of values. dominated the off-plan sales market, in both transactional values and volumes, as in Q2. 4, Volume of Residential Transactions Q3 218 3, HOT TOPIC The wider introduction of Lease-to-Own or Rent-to-Buy schemes could help to significantly boost investor interest and stimulate absorption rates as the risk for the buyer would be reduced. Lease-to-Own schemes are not yet widespread in the Dubai residential market and are only being implemented in areas witnessing the highest levels of local competition between schemes. However, with market uncertainty likely to continue for the foreseeable future, it is proof that developers are willing to be creative to occupy their units. Completed Propert 6, 2, 5, 1, 4, Q2 218 Q3 218 3, 2, 1, Q2 218 Q3 218 6, of Residential Transactions Q3 218 (AED Billions) Value 5, 4, 3, 2, 4.45 4.93 1, Q2 218 Q3 218 4.45 The Observer - Dubai Residential Q3 218 6 4.93 The Observer - Dubai Residential Q3 218 7
Sales Transactions Completed Units Sales Transactions Units Top 1 Areas Based on Transaction Volumes Top 1 Areas Based on Transaction Volumes International Emirates Living Palm Jumeirah Barsha Heights Dubai Sports Al Furjan 1 2 3 4 5 Business Bay MBR International Dubai South The Lagoons Jumeirah Village Triangle 1 2 3 4 5 6 7 8 9 Top 1 Areas Based on Transaction Values (in million AED) Top 1 Areas Based on Transaction Values (in million AED) Emirates Living Palm Jumeirah Al Wasl Al Furjan Arabian Ranches Barsha Heights 2 4 6 8 1, MBR Business Bay Bluewater Islands The Lagoons International Palm Jumeirah 1 2 3 4 5 6 7 8 9 1 The Observer - Dubai Residential Q3 218 8 The Observer - Dubai Residential Q3 218 9
Contact Us Nick Witty, BSc (Hons) MRICS Managing Director MENA nick.witty@chestertons.com Adam Wilson, BSc (Hons) MRICS ACIArb Director Head of International Valuations adam.wilson@chestertons.com Vladimir Cvetinovic, MRICS Associate Director Valuations & Advisory - Abu Dhabi vladimir.cvetinovic@chestertons.com Ivana Gazivoda Vucinic Head of Consulting MENA ivana.vucinic@chestertons.com Ellen Sleutjes Head of Property Management - UAE ellen.sleutjes@chestertons.com Mena Head Office 182, Blvd. Plaza Tower 1 Sheikh Mohammed Bin Rashid Blvd. PO Box 28336, Dubai United Arab Emirates Office: +9714 381 2 Fax: +9714 325 3359 Email: uae.enquiry@chestertons.com Dubai Office 16, Rasis Business Center, Al Barsha 1 PO Box 283361, Dubai United Arab Emirates Office: +9714 392 7818 Email: dubai@chestertons.com Abu Dhabi Office Office M1, Mezzanine Floor Al Ghazal Building (Above Al Hilal Bank) Khalifa Park PO Box 128983, Abu Dhabi United Arab Emirates Office: +9712 447 31 Fax: +9712 441 62 Email: abudhabi@chestertons.com Bahrain Office Maz Business Centre The Lagoon Amwaj Island Office: +973 163 646 Email: bahrain@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. www.chestertons-mena.com