Dubai apartment prices under pressure

A 10 per cent drop in prices in the Discovery Gardens of Dubai re-enforces the perception that a two-tier market is developing in Dubai - with price comparison graphic.

A one-bedroom apartment in Discovery Gardens rents for an average of Dh38,000 a year. Pawan Singh / The National

Sale prices in Dubai's Discovery Gardens dropped 10 per cent in the third quarter compared with the previous quarter as thousands of new apartments entered the market.

Apartment prices fell 4 per cent overall in the quarter and villa prices remained steady, according to data compiled by the property company Asteco. And rents continued to stabilise, with rates unchanged in most neighbourhoods.

Property: Apartment prices

The percentage change in apartment sale prices from Q2 to Q3 2011

But the drop in apartment prices in Discovery Gardens, as well as a 7 per cent decline in sale prices in Jumeirah Lakes Towers 7 from the second quarter, re-enforced the perception that a two-tier market is developing in Dubai.

"The sheer volume of property put into the market in the last few months must impact the market," said Elaine Jones, the Asteco chief executive. "It's basic supply and demand."

About 11,000 new homes have hit the market in Dubai since the start of the year, according to Jones Lang LaSalle. Most of the new supply has been apartments.

In Discovery Gardens, a 240 hectare Nakheel development with more than 26,000 apartments, owners have not been able to charge rents high enough to cover their mortgages, Asteco said.

The situation was exacerbated this year when Nakheel "released a significant number of units at reduced rents, coupled with the high service charges", which put further pressure on owners to sell at reduced prices, Asteco said.

A Nakheel spokesman could not be reached for comment.

A one-bedroom apartment in Discovery Gardens rents for an average of Dh38,000 (US$10,345) a year, compared with Dh47,500 a year ago, a 20 per cent drop, Asteco reported.

Rents in most areas were essentially unchanged from the previous quarter, except for Discovery Gardens, Jumeirah Lake Towers and International City, which represent the lower end of the markets tracked by Asteco. In International City a one-bedroom typically rents for Dh24,000, compared with Dh32,000 a year ago.

At the other end of the market, there are signs of continued stabilisation of rents in villas and luxury apartments. In the first half of last year, rents in projects in Palm Jumeirah, Jumeirah Beach Residence and towers on Sheikh Zayed Road fell. But there has been little change in rents in the prime properties in the past year.

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A one-bedroom in Jumeirah Beach that rented for Dh75,000 a year ago now rents for an average of Dh70,000, Asteco reported.

Demand for rentals is growing, Ms Jones said. "Now we're seeing stability. We don't see any more reductions in the short term."

Jones Lang LaSalle found a 3 per cent average drop in rental prices in the third quarter from the second, with villa prices increasing by 2 per cent. Cluttons reported apartment rents dropped 2.5 per cent in the quarter, but "less desirable locations are still experiencing the effects of the supply-demand gap".