Dubai property prices are falling faster than rents

Apartments at Jumeirah Village Circle. Jeffrey E Biteng / The National

Prices in Dubai’s property market are falling at a much faster rate than rents, according to ReidIn data.

The latest UAE Residential Market Overview from ReidIn shows that sale prices have dropped 4 per cent during the last three months, while rents have fallen by just 2 per cent. Over a 12-month period, Dubai sale prices have dropped by 8 per cent year on year, but rents have not fallen at all.

In Abu Dhabi, the same phenomenon is occurring, although both rental and price movements have been less pronounced.

Over the last three months, prices have dropped by 1 per cent but rents have increased by the same amount. Over a 12-month period, prices are 3 per cent lower year on year, but rents are 2 per cent higher.

The yield investors can earn from properties in both of the UAE’s main markets is increasing as a result, which should be making the market more attractive for investors. However, developers launching off-plan projects at discounts to completed stock and attractive payment plans are competing for their cash.

In its report on the UAE economy published last week, the IMF said gross rental yields on UAE residential properties “have risen since mid-2014, registering a 6 per cent year-on-year increase in March”.

Despite this, analysts are forecasting declines in property values of 10 to 20 per cent in Dubai due to the amount of new supply.

“At the moment, we’re seeing capital values continuing to modestly decline,” said Faisal Durrani, international research and business development manager at Cluttons.

“It’s fair to say that there has been more resilience in the rental market than in sales.” He said there was still a lot of demand for rental properties, as job-creation levels remain strong, especially as the Dubai Expo 2020 moves from being a medium-term proposition to a short-term one.

Moreover, although Cluttons’ own data recorded 40,120 new off-plan units being launched to date this year, Mr Durrani said that current population forecasts should ensure that these units will be absorbed.

“If yields continue to strengthen there will be an appetite to acquire – from buy-to-let and buy-to-live investors,” he said.

John Stevens, managing director of Asteco Property Management, believes the difference between sale and rental prices is only the result of a temporary lag that will correct itself as more units are handed over this year, causing rents to decline.

His firm predicts 16,000 units will be handed over in 2015 – mainly in newer areas of the city such as Dubailand, IMPZ and Jumeirah Village Circle.

For Dubai, it reported a 3 per cent drop in sales and a 2 per cent drop in rents during the second quarter of this year.

“For Q3 and Q4, we don’t necessarily think that there will be an increase, but we don’t think we’ll see much of a fall, either.”

He also believes that the more attractive yields on offer will tempt buyers back into the secondary market.

“People are starting to think that property is becoming more affordable again, and that prices are not likely to fall much further.”

For instance, over a 12-month period prices in Dubai Marina are 15 per cent lower than a year ago, Mr Stevens said. “We don’t think there will be further falls, but what we do expect to see is a steep increase in transactional activity. As prices have dropped, more people are entering the market.”

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