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.”
mfahy@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
