Q2 218 FOREWORD Market Report CONTENTS Cavendish Maxwell is a highly respected independent firm of chartered surveyors and property consultants, focusing on real estate services throughout the Middle East and Africa. Established in 28, Cavendish Maxwell is now one of the most influential consultancy firms in the region. As a fully qualified member firm of the Royal Institution of Chartered Surveyors (RICS), and with extensive knowledge of the region, Cavendish Maxwell has the necessary experience, expertise and insight to deliver property advice of the highest standard. Our reports are used for loan security, audit, insurance reinstatement, dispute resolution, risk management, debt recovery, performance analysis, project financing, development strategy and government initiative implementation. We provide a comprehensive range of property services across all our departments, each of which is headed by highly skilled, experienced and fully qualified RICS chartered surveyors. Our various teams provide valuation, agency, advisory, management, capital investment, research and building consultancy services across all property types and sectors. Our Q2 218 report provides a summary of the residential market as well as a sector focus on the hospitality market. Price movement, rent and yield statistics, residential transactions and upcoming supply of residential properties are provided through Property Monitor, a real estate intelligence platform, powered by Cavendish Maxwell. The report also incorporates the Property Monitor Residential Survey, conducted among partner agents operating within. The survey showcases how new enquiries, leasing activity and transactions, among other metrics, changed over the previous quarter. It also provides an outlook on the following quarter and predictions by professionals, which are studied against real performance. 2 Q2 218 Market Report Cavendish Maxwell 218 cavendishmaxwell.com 4 House Price Timeline 6 Price Performance 8 Rent Performance 1 218 Upcoming Supply Map 12 Residential Sales Overview 15 Property Monitor Residential Survey 16 Sector Focus - Hospitality 18 Methodology Property Monitor 218 propertymonitor.me 3
HOUSE PRICE TIMELINE In Q2 218, villas/townhouses have traded at around AED 2.4 million, whereas transacted apartment prices have averaged AED 1.3 million. Transacted prices for villas/townhouses have settled above the 217 average during Q2 218, mainly due to the limited lower priced inventory entering the market this year compared to the launches in the first half of 217. Meanwhile, trading prices for apartments continue to shift towards the lower end of the price band, averaging AED 1.3 million in Q2 218. The announcement by the UAE government on new 1 year visa regulations for certain categories of residents, as well as the 1% foreign ownership in companies, could have a positive impact on housing demand from expatriates. However, the details of the new visa options is expected in the last quarter of this year and the direct impact on real estate would only become clear at that time. For the moment, some buyers continue to wait on the sidelines as further price declines are expected in the majority of the communities during the second half of 218. 4.M 3.5M House Price Timeline Sales Price (AED) from the period January 28 to June 218 Average Sales Price Q2 218 AED 1.3 Million APARTMENTS AED 2.4 Million VILLAS/TOWNHOUSES 3.M 2.5M Average Sales Price AED 2.M 1.5M 1..5M UAE real estate boom Lehman Brothers collapse Early sign of trouble Nakheel and DWC announcing plans for debt restructuring Central Bank mortgage cap Russian currency crisis OPEC limits crude output Oil price peak at $145/barrel Oil price collapse at $32/barrel Bond issuance by the Central Bank Abu Dhabi s $1 billion loan to Rebound growth for the general market - oil prices above $1 Expo 22 announcement New market peak Oil Price collapse at $47/barrel Oil price deregulation Brexit Affordable housing arrived Q1-28 Q2-28 Q3-28 Q4-28 Q1-29 Q2-29 Q3-29 Q4-29 Q1-21 Q2-21 Q3-21 Q4-21 Q1-211 Q2-211 Q3-211 Q4-211 Q1-212 Q2-212 Q3-212 Q4-212 Q1-213 Q2-213 Q3-213 Q4-213 Q1-214 Q2-214 Q3-214 Q4-214 Q1-215 Q2-215 Q3-215 Q4-215 Q1-216 Q2-216 Q3-216 Q4-216 Q1-217 Q2-217 Q3-217 Q4-217 Q1-218 Q2-218 Note: House Price Timeline tracks residential property transactions from Land Department (off-plan and secondary) to derive monthly and quarterly average transacted prices for apartments and villas/townhouses. 4 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 5
PRICE PERFORMANCE According to the Property Monitor Index, apartment and villa/townhouse prices have registered 12 month declines of 2.9% on average. In Q2 218 sales prices across the residential market registered quarterly declines of 1.1% for villas/townhouses and apartments. Buyers continue to be spoilt for choice in the off-plan market thus forcing developers to offer special incentives such as aggressive payment plans, fee waivers etc. to differentiate their projects. Meanwhile, secondary market activity remains concentrated in buildings/communities where investors are expecting relatively stable yields and end-users are replacing rental outflows with mortgage payments. Apartment Change in Price (%) QoQ% change Q1 218 - Q2 218 12 month % change Q2 217 - Q2 218 International City (Clusters) -1.3-3.1 Discovery Gardens -1.4-1.5 Village Circle -1. -3.5 IMPZ -.7-1.4 Uptown Motor City -1.4 Silicon Oasis -1.2-2. Al Furjan -3.8-4.4 Sports City -1.1-3.5 Village Triangle -4.4 Lakes Towers -.8-4.5 The Greens -1.2-2.5 Business Bay -2.1 Marina -.6-1.7 The Views -.8-2.3 Beach Residence -1. -2.6 DIFC -1.1-2.6 Palm -.3-1.9 Downtown Burj Khalifa -3.1 -.5% -1.% -1.5% -2.% -2.5% -3.% -3.5% -4.% -4.5% Villa/Townhouse Change in Price (%) QoQ% change Q1 218 - Q2 218 12 month % change Q2 217 - Q2 218-1.2 Al Furjan Villas -3.3 Cedre Villas Silicon Oasis -3.7-2. Village Triangle -3.1 -.7 Green Community Motor City -2. The Springs -1.3-4.5 Park -2. -.8 Arabian Ranches -2. Victory Heights -3.8-4.2 -.8 The Meadows -2.9-1. The Lakes -2.2 -.3 Golf Estates -4. -1.2 Islands -3.4 -.7 Palm (Garden Homes) -2.3 -.5% -1.% -1.5% -2.% -2.5% -3.% -3.5% -4.% -4.5% Average Price per Sq ft (AED) Average Price per Sq ft (AED) Lakes Towers 1,194 Palm Jumierah Business Bay 2,168 Beach Residence 1,466 Palm (Garden Homes) 1,623 2,635 Park Marina Downtown Burj Khalifa 1,5 The Greens 2,373 1,622 1,312 Discovery Gardens DIFC Islands 86 The Views 1,777 1,471 1,553 The Lakes 1,355 Al Furjan 87 Al Furjan Villas The Meadows 827 1,323 Village Triangle 1,75 Village Triangle 92 Uptown Motor City 841 The Springs Green Community Motor City 971 1,22 IMPZ International City (Clusters) Arabian Ranches 835 596 1,179 Cedre Villas Silicon Oasis 92 Sports City Silicon Oasis 946 Village Circle 8 Golf Estates 811 1,2 Victory Heights * Average price per sq ft as of June 218 * Average price per sq ft as of June 218 1,15 6 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 7
RENT PERFORMANCE Rent declines for residential properties in averaged 5% over the last 12 months and 2.5% on average quarter on quarter. -4.4 DIFC Declines were more pronounced in International City (Clusters), The Greens in Emirates Living, Discovery Gardens and Al Furjan averaging 12 month changes of more than 6%. Rent decline are expected to continue during the second half of 218, with new handovers planned in both freehold and leasehold communities across. Landlords on the other hand are offering various incentives such as flexible payment terms, rent free period and in certain cases are reducing lease rates for the existing tenants in order to keep the units occupied amidst low demand. Operating expenses have continued to rise and net realised yields have compressed in the majority of the locations across during the last twelve months. Thus, investors need to factor in the building quality, occupancy levels and the expected supply within the community to ensure a relatively stable rental income. AED 74, AED 1,7 AED 172,98-1.8 Downtown Burj Khalifa AED 83,19 Business Bay -3.9 AED 1, AED 151,933 International City -6.1 AED 72,65 AED 85, AED 127,215 AED 31,115 AED 41,38 AED 55,8 Annual Rent by Bedroom Level * Data as of June 218 Apartment 8 Studio Rent Villa/Townhouse 3 BR Rent 1 BR Rent 4 BR Rent 2 BR Rent 5 BR Rent 12 month % change 12 month % change Beach Residence AED 131,754 Marina Discovery Gardens AED 13,2 AED 97,78 AED 15, AED 71,85 AED 39, AED 52,5 Al Furjan Villas AED 72,1-4.6 Lakes Towers -5.5-6.7 AED 149,325 AED 192,5 AED 12,9 The Greens -5.9-5. The Views AED 178,1-6.5 AED 395,2 The Lakes -3.2 AED 59,35 AED 79,464 AED 1,685 AED 58,88 AED 72, AED 274,7 Islands AED 266,5 AED 353,6 AED 181,888 AED 218,225-4.8 AED 235,75-3.5-6.1-4.6 Park AED 65,33 AED 9,95 AED 123,955 AED 176,55 AED 213, -5.2 AED 27,25 The Meadows AED 153,6 AED 171,5 The Springs AED 245,7 AED 247,4 AED 312, Golf Estates -5. -3.8 AED 188,5 AED 28, -5.6 AED 44,75 AED 69,737 AED 112,654 Sports City Victory Heights Arabian Ranches I -5.1 Motor City AED 51,8 AED 77,4 AED 111,15 AED 184,295 AED 246, AED 285, 2 Cheques Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 22.% 9-7. Rental Cheques For Apartments and Villas/ Townhouses According to Property Monitor s database of rental contracts, the majority of the rental agreements for residential properties in Q2 218 were in one cheque (38% of total), however it reduced by 12% compared to last quarter. Rental payments made in four cheques increased by 6% over the quarter. This is among the incentives that landlords have been offering to keep units occupied. 6 Cheques 2.7% 4 Cheques 27.1% 3 Cheques 7.1% 12 Cheques 5.2% 1 Cheque 38.2%
Q2 218 Q2 218 Market Report Market Report 218 UPCOMING Deira SUPPLY MAP Al Qusais Oud Al Muteena Al Mankhool Approximately 3,7 residential units have been handed over across in Q2 218. DIFC 88% APARTMENTS Al Jaddaf Downtown Burj Khalifa 12% Business Bay VILLAS/TOWNHOUSES International City The majority of the handovers during the Q2 of 218 were in Village Circle, Damac Hills, Silicon Oasis and Al Nahda with more than 3 units being handed over in each location. More than 88% of the handed over units were apartments. For the remainder of the year, the majority of the upcoming supply is concentrated in Al Furjan, Business Bay, Village Circle and Town Square. Approximately 52% of the upcoming supply expected to be handed over during Q3. Increasing handovers will continue to impact rents in most locations across as tenants have more choice. This will also impact occupancies in existing stock and should be factored into net yield estimations for the forthcoming period. Meydan City Al Qouz Palm Bluewaters Island PROPERTY MONITOR SUPPLY TRACKER 4-6 1, - 1,5 1,5-2, 2,+ 6-1, Majan Al Barsha Living Legends The Hills Village Circle Motor Village City Triangle Sports Supply scheduled to be completed by end of 218 2-4 Mohammed bin Rashid City Al Sufouh Barsha Heights - 2 Al Warqa Al Furjan City Golf Estates Silicon Oasis Residence Complex Arabian Ranches II Damac Hills Town Square Akoya Oxygen Investments Park South 1 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 11
RESIDENTIAL SALES OVERVIEW Off-plan sales accounted for 58% of the total sales in Q2 218. Residential Sales Q2 218 8,163 APARTMENTS 1,42 VILLAS/TOWNHOUSES Mohammed Bin Rashid City, Business Bay and Village Circle dominated the off-plan sales during the second quarter of the year. On the other hand, Marina and International City led the secondary market apartment sales, along with Sports City, which accounted for 33% of the total apartment secondary sales during Q2 218. Secondary market sales among villas/townhouses surpassed the off-plan sales in Q2 218, led by Emirates Living and International City, which together accounted for 23% of the total secondary market sales registered during the second quarter. Top Five Locations for Apartment Sales in Q2 218 731 Off-Plan Sales Secondary Market Sales 7 6 648 7 6 No. of Transfers 5 4 3 2 366 37 281 No. of Transfers 5 4 3 2 356 224 218 174 154 1 1 Mohammed Bin Rashid City Business Bay Top Five Locations for Villa/Townhouse Sales in Q2 218 Off-Plan Sales Secondary Market Sales 25 25 225 2 225 2 175 15 125 1 No. of Transfers 175 15 125 1 75 5 75 5 25 25 Town Square Mohammed Bin Rashid City Al Qouz South Serena Emirates Living Village Circle Downtown Burj Khalifa The Lagoons No. of Transfers Marina Mohammed Bin Rashid City Arabian Ranches International City Sports City Downtown Burj Khalifa Palm 212 15 111 14 97 44 68 64 24 17 International City Akoya Oxygen Note: The above information is based on daily transactions data published by Land Department from property registrations during the period. This does not reflect the date of sale and should not be construed as such. 12 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 13
SURVEY RESULTS Looking Back Q2 218 Predictions The majority of agents surveyed had predicted apartment and villa prices to decrease by up to 5%. The majority of agents had predicted that apartment and villa rents would decrease by up to 5% in Q2 218. Majority of agents had predicted new buyer enquiries, seller instructions and agreed sales would increase in Q2 218. vs Reality Apartment and villa prices have registered 12 month declines of 2.9% and QoQ declines of 1.1% on average. Apartment and villa rents declined by 2.5% QoQ though 12 month decline is around 5% on average. According to data from real estate agencies, transaction levels for Q2 218 are higher than Q1 218. Looking Forward Q3 218 Q3 218 Transaction Outlook Q3 218 Price Outlook Apartments Percentage of agents who predict apartment prices will: 4.2% 1.2% 2.5% Villas/Townhouses Percentage of agents who predict villa/ townhouse prices will: 2.4% 1.2% Percentage of agents who predict new buyer enquiries will: 29.1% 22.1% 26.5% 25.9% 22.9% 48.8% Decrease Increase Remain the same Percentage of agents who predict new seller instructions will: 47.6% 47.6% Increase by more than 5% Increase by up to 5% Not change Decrease by up to 5% Decrease by more than 5% and Residential Survey 3.3% 17.4% Q3 218 Rent Outlook Apartments Percentage of agents who predict apartment rents will: 2.4% 1.2% Villas/Townhouses Percentage of agents who predict villa/ townhouse rents will: 3.% 1.2% 52.3% Decrease Increase Remain the same 21.7% 18.1% 2.5% 22.3% Percentage of agents who predict agreed sales will: 26.7% 32.% 56.6% 53.% Increase by more than 5% Increase by up to 5% Not change Decrease by up to 5% Decrease by more than 5% Residential Survey 41.3% Decrease Increase Remain the same 14 14 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 15
SECTOR FOCUS HOSPITALITY Occupancy Rates ADR Overall occupancy rates increased by.5% in during 217, which was predominantly due to expected supply not entering the market and an increase in recorded guest numbers. However, as at Q2 218, increases in supply of 4% have outpaced demand increases of only 1.7%, resulting in a 3.9% decrease in average occupancy levels. Average Daily Rate figures for the period of January to May 218 are showing a 4.% fall versus the same period in 217. Although the rate of decline is slowing, it is expected that declines will continue as additional supply enters the market. SEGMENT FOCUS - LUXURY OPERATIONAL PERFORMANCE Operational performance in the luxury segment has remained resilient despite heavy pressure on all department revenue streams. Cavendish Maxwell have analysed trading performance of a group of luxury positioned properties, of which, over 3% consider themselves a resort. Resort properties typically have very different cost structures to that of a city hotel tower positioned in the luxury sector. As the value of a hotel asset is intrinsically linked to the profitability, it is important to understand how certain properties are performing in order to provide accurate forecasts. Undistributed Operating Expenses include all expenses relating to property operation, maintenance, system costs, utilites, administration, general, sales and marketing costs. Luxury properties within the set managed to decrease their Undistributed Operating Expenses per available room (PAR) by 1.4%. Departmental profits, which include revenue streams linked to rooms, F&B, spas and all other operating departments, saw falls of 3.2% per occupied room (POR). The result of reduced revenues was partially offset by the reduction in costs, however the average Gross Operating Profit (GOP) of the selected group of hotels was down 5.3% standing at just under 4%. Percentage Change (%) -.25 -.5 -.75-1. -1.25-1.5-1.75-2. -2.25-2.5-2.75-3. -3.25-3.5-3.75-4.25-4.5-4.75-5. -5.25-5.5-5.75-6. YTD Occupancy Changes 77.2%.5% 3.9% 217 218 YTD -1.4% Undistributed Expenses (PAR) 216 vs 217-3.2% Departmental Profits (POR) YTD ADR Changes AED 677 3.9% 4.% Luxury Luxury Luxury 73.6% 1.2% 2.% Luxury AED 1,258 1.3% 2.9% Source: STR and DTCM -5.3% GOP (PAR) Source: Cavendish Maxwell and STR SUPPLY AND DEMAND Room Supply At the end of 217 the Department of Tourism and Commerce Marketing (DTCM) reported a total hospitality inventory of 17,431. As of the end of Q2 218, the total inventory has increased by 4% standing at 111,743. Noticeable openings during 218 include the QE2 and Holiday Inn Festival City, both of which opened in April. Demand Millions 16 14 12 1 8 6 4 2 FORECASTS The below graph shows the forecast for hotel room supply. The total forecast supply includes all projects that have progressed to the planning phase. This represents an inventory increase of 64.3% or 69, rooms. However, approximately 58% of the total forecast supply is currently under construction and is expected to be completed by December 22. This represents an inventory increase of 41.2% or 4, rooms. 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% 14.9M 15.79M 216 217 Q2 218 Total Forecast Supply Additional Rooms 69, (242 Projects) Increase of 64.3% 4.65M Source: DTCM Jun 218 Dec 22 Additional Rooms 4, (14 Projects) Increase of 41.2% Source: Cavendish Maxwell 4,312 Rooms added to the total supply during 218. 17,431 Total hospitality supply at the end of 217. Demand in the form of visitors and overnight guests staying in hotels totalled 15.79 million in 217. continues to diversify and push to increase tourism numbers through a number of government initiatives to promote growth. has seen positive results, recording a 41% increase in Chinese tourism and 15% increase in Indian visitors. Russian guest numbers continue to increase and are now the fourth highest source market in, with numbers expected to continue rising. Q2 218 continued to see growth in tourism numbers, with an increase of 1.7% compared to Q1. Occupancies to soften, placing heavier pressure on ADR s To achieve the 2 million visitor target set for 22, needs to increase the guest numbers by 7%, 8% and 1% during 218, 219 and 22 respectively. DTCM data shows the current average length of stay in is 3.5 days and a double occupancy factor of 1.9. Double occupancy factor refers to the average number of guests per occupied room. Keeping the above factors constant, assuming acheives the targeted 2 million visitors and applying the supply forecasts, can expect the following average occupancies in 22. Percentage of forecast supply completed by 22 1% 75% 5% 69.9% 71.4% 74.8% occupancies 4% Source: Cavendish Maxwell and DTCM 71.4% 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Source: Cavendish Maxwell 16 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 17
METHODOLOGY PEOPLE Sale prices and rents are derived from Property Monitor (www.propertymonitor.me), a real estate intelligence platform established by Cavendish Maxwell in 214. Property Monitor provides real-time, market-wide transactional data and trends. Working with governments, agencies, banks, developers and corporate investors, it provides deeper insight into real estate advisory, investment, and lending activities. The average sales price per sq ft is based on the Property Monitor Index which incorporates signed contracts, registered transactions, valuations and listings verified by Cavendish Maxwell s market leading valuation department. Property Monitor Residential Survey is a quarterly study of agent opinion designed to identify residential market sentiment. This research highlights how new enquiries, leasing activity and transactions, among other metrics, changed from quarter to quarter with agent predictions compared to actual real market performance. Supply projections for residential projects are based on the Property Monitor Supply Tracker which tracks supply in real time, regular tracking of construction projects, new launches and delays. This is achieved through site inspections as well as regular feedback from developers, contractors, Cavendish Maxwell s building consultancy team and related government entities. Jay Grant MSc IRRV (Hons) Founder and Chairman E: jay.grant@cavendishmaxwell.com Nigel Armstrong FMAAT Chief Executive Officer E: nigel.armstrong@cavendishmaxwell.com STRATEGIC CONSULTING AND RESEARCH Our consulting and research team includes seasoned professionals with international advisory experience offering bespoke and localised services. Through them, our clients immediately gain access to our knowledge base, technical expertise and highly skilled individuals, making us the development partner of choice. The team leverages their global expertise to offer tailored advice to clients in the MENA region covering all real estate classes including residential, office, hospitality, education, mixed-use developments, among others. 4 BANKS James Cresswell BA (Hons) MSc MRICS Partner Head of Commercial Valuation E: james.cresswell@cavendishmaxwell.com Sofia Underabi MRICS AAPI Partner Head of Residential Valuation E: sofia.underabi@cavendishmaxwell.com The team partners with developers, investment companies, family offices and the government to deliver actionable development and real estate investment strategies aligned with prevailing and forecasted market conditions. The work of the advisory team is supported by Property Monitor, the UAE s only real estate data source offered by RICS accredited property professionals, as well as multidisciplinary valuation and investment departments. Our documents and advice meet banking and audit criteria, proven by our presence on over 4 bank panels across the Middle East. Moe Abeidat Chief Technology Officer Property Monitor Andrew Love MA (Hons) MRICS Partner Head of Investment and Commercial Agency E: moe.abeidat@propertymonitor.ae E: andrew.love@cavendishmaxwell.com KEY SERVICES Market Research Portfolio Strategy Development Recommendations Property Data Advisory Services Education Advisory and Valuation Feasibility Studies Highest and Best Use Studies Market Entry Strategy Site Analysis Manika Dhama BA (Hons), MBA Associate Partner Strategic Consulting and Research Dan Harrison BSc (Hons) MRICS Associate Partner Hotels, Hospitality and Leisure Disclaimer: The information and analysis contained in this report has been obtained from is based on information from a variety of sources generally regarded to be reliable and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons. E: manika.dhama@cavendishmaxwell.com E: dan.harrison@cavendishmaxwell.com The report and analysis does not purport to represent a formal valuation of any property interest and must not be construed as such. Such analysis including forward looking statements are opinions and estimates only and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these variables can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report. 18 Cavendish Maxwell 218 cavendishmaxwell.com Property Monitor 218 propertymonitor.me 19
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