According to Cushman & Wakefield Core’s Q2 Dubai Residential Market Update 2017, overall transaction numbers have increased in the second quarter. While sales prices begin to show signs of recovery, rentals have continued to soften across the board – hence creating one of the last pocket of opportunities to enter a recovering market in the coming quarter.
Sales market
“Most prime villa markets displayed a positive second quarter performance, with Emirates Hills and Palm Jumeirah marking a slight uptick for the first time in the last 2 years. However, this positive performance was mainly due to a few large transactions having a significant statistical effect on the district average in these markets that fundamentally lack liquidity” detailed the report.
“The mainstream market displayed disparity with a few areas marking a rise, while others observed a ‘double dip’. The outer areas of Dubailand and Dubai Sports City maintained a relatively stable upward momentum. Discovery Gardens displayed a classic case of double dipping, with newer developments being delivered in close proximity to the submarket at very competitive prices. Interestingly, after leading the recovery trend for the villa districts, The Springs and The Meadows marked a slowdown due to the trickle-down effect of Mira’s delivery in Reem.” Mr Godchaux adds: “Long-term investors and occupiers who are keen on the central locations are the ones holding interest for these historically core submarkets.”
Our research revealed that sales are not affected by the month of Ramadan and that other factors have a higher impact on transactions such as seasonality, due to the hot summer months and school holidays, paired together with an economic slowdown.
David Godchaux explains: “To gauge the common perception that property transaction activity slows down during Ramadan, we analysed sales volume since 2010. Since the holy month has fallen during summer over the last few years, it has caused a perception that sales slow down during Ramadan; while on the contrary, evidence suggests that people travel less often during that month. The slowest months on average have been August, followed by September and October, when Ramadan was not coinciding. Unsurprisingly, transactions peak in June, which marks the end of Q2, as sellers and buyers attempt to finalise transactions before the summer lull.”
As predicted in Cushman & Wakefield Core’s Q1 2017 report, the growing off-plan supply continues to negatively affect ready property sales. This detrimental effect on the secondary market has been felt particularly for a few apartment districts. According to the report, “existing owners try and attract the same pool of investors and end-users as they attempt to sell their ready-properties. They contend with highly competitive and attractive payment plans offered by master developers; for instance, in Downtown Dubai. With a wider variety of products to offer, developers can retain their edge over individual landlords, hence for now affecting a portion of the secondary market.”
Rents
The report highlights a statistical bias in calculating rental drops, as the market is largely transacting at the lower end of the spectrum bringing the area average down: “This has let some market commentators to over-report the amplitude of the actual rental softening. Nonetheless, rental contractions of varying degrees are felt across the 18 of the 19 submarkets we track.”
Mr Godchaux explains that “This effect is further intensified in Dubai as lease terms generally end between March and September and a larger movement of tenants is noticed during the summer months. This has led landlords to become increasingly aware of the market and become susceptible to negotiations by compromising on yields to retain or attract tenants, sometimes even over adjusting. Multiple cheques are becoming more common, as landlords incentivise tenants while aiming to keep headline rents steady.”
“Furthermore, a growing segment of tenants are shifting from rental to ownership as better payment terms from both banks and developers come into play, while rental yields remain relatively high across Dubai even after seen some level of compression. This makes the cost of renting vs owning still comparatively more expensive than other global cities.”
In his concluding remarks, Mr Godchaux says: ”We noticed many landlords that were keeping units vacant for 12-18 months as they were not ready to adjust rents when the overall market started to soften. A lot of them are now reacting by decreasing the rents, to attract tenants back and finally initiate rental income, sometimes more than necessary.”