Apartment rents dip 5% in Q1 on fresh stock

Dubai apartment rentals dropped five per cent in the first quarter of 2010 compared to the fourth quarter of 2009 due to a fresh stock of delivery entering the market, a new report said.

According to Asteco's latest report titled, Dubai Report Q1 2010, rental rates in selected areas such as Discovery Gardens, Dubai Marina and Jumeirah Lakes Towers (JLT) are expected to decline further throughout the year due to numerous projects nearing completion.

"International City (IC) saw the most significant price correction due to limited landscaping, maintenance, location and the density of its population," said Elaine Jones, CEO, Asteco Property Management.

According to Asteco, villa rentals remained stable during the first quarter of this year compared to the fourth quarter of last year.

While, rental rates in Downtown Dubai and The Palm Jumeirah increased by an average of two per cent, overall, rentals remained stable in Jumeirah Beach Residence (JBR).

Further, increased availability in Arabian Ranches, Green Community and Mirdiff resulted in a slight drop in rental rates.

Sales volumes increased for Asteco in the first quarter of this year compared with the fourth quarter of 2009 especially with respect to Palm Jumeirah and Downtown Dubai.

"This is in line with both increased availability of finance at lower rates and availability of affordable deals. Sales prices decreased by an average of seven per cent since the fourth quarter of 2009."

JLT, Discovery Gardens and International City also recorded an increased transaction activity and enquiries mainly due to significant price reductions and handover of projects.

Demand was predominantly for villas in established locations in Dubai such as Jumeirah and Emirates Living such as The Springs, Meadows, which has caused rental rates in Jumeirah and The Meadows to remain the stable. The Palm Jumeirah and The Springs even recorded slight increases of five per cent and two per cent respectively.

Developments along Emirates Road such as Green Community and Arabian Ranches continue to generate demand from Abu Dhabi as rental rates are competitive and these developments offer better facilities, amenities, quality, convenience and access to roads leading to the UAE capital.

Villa rentals stable

A large number of property buyers are looking for smaller units in established locations due to a lower price point and the opportunity to lease the property out for investment purposes.

Sales in areas such as Dubai International Financial Centre (DIFC) are limited due to the limited amount of completed stock.

Villa prices fall

Villa sales prices have seen an average decrease of one per cent since the fourth quarter of 2009. Established communities such as Springs, Meadows and Arabian Ranches are the preferred choice for buyers.

Both Springs and The Meadows are located close to the Sheikh Zayed Road for easy access. Improved infrastructure around Arabian Ranches and additional stock has led to an increased number of sales.

Demand for smaller villas are higher due to the price point on both a sale and lease basis. Although, the number of enquiries is strong, there is still a gap between asking prices and what buyers are willing to pay.

"Only attractive deals realise as a result. Many owners are occupying units themselves or leasing them out as they wait for prices to improve," said Jones.

Office rentals continued to decrease and have seen an average drop of seven per cent since the fourth quarter of 2009 due to limited demand and increased supply in areas such as DIFC, JLT and Tecom.

The number of enquiries, however, remained stable and is coming from small- to medium-sized businesses looking for commercial units ranging from 1,500 to 5,000 square feet.

Majority of tenants are looking for fitted office space to reduce start-up costs and time. As more stock enters the market, this will continue to put downward pressure on rental rates and occupancy rates in the short-term which will benefit tenants who are looking to upgrade in terms of quality and location. "This could also result in new start-ups due to reduced costs," said Jones.

Sales prices for office units dropped by 10 per cent compared with the fourth quarter of 2009, however despite the decrease, demand and resulting transaction volumes remained low.

Developments such as JLT, Tecom and Business Bay recorded some activity over the last three months. "JLT benefits from its affordability due to a large completed or nearly completed inventory," said Jones.

Tecom, on the other hand, has a limited amount of freehold units and benefits from a large number of residential units in close proximity to a live/work environment.

Asteco has seen a few transactions for Business Bay but the lack of infrastructure, uncertainty over completion and the amount of construction in the area continue to hinder sales. "The limited number of enquiries has only been for small to medium sized units of 1,000 to 3,000 square feet.

"The majority of potential buyers are looking for completed properties for owner occupation rather and long-term investment," the Asteco report said.

Mortgage

The Asteco report said, over the past three months, most lenders have reduced their mortgage rates by 25 basis points or more, making mortgages more affordable than they were last year.

Lenders are very focused on completed developments rather than those which are still under construction in Dubai, although in Abu Dhabi lenders favour the major developers and are prepared to lend against 'under construction' properties, as well as those that are soon to become available.

Most banks still remain active and offer borrowers that are assessed on very low risk between 60 per cent and 85 per cent of the property valuation. Interest rates range from 5.75 per cent to 8.5 per cent, and most banks have moved from Eibor-linked rates to their own base rates to reflect the true cost of funds.

Lenders are also prepared to take "buy outs" from other financial institutions for those clients who have an existing mortgage and want to refinance to take advantage of special rates as low as 6.5 per cent. Additionally, some lenders may release equity funds against the property so that funds can be utilised for personal needs or to improve cash flow.

Rise & fall

Even as Asteco said Dubai apartment rentals dropped five per cent in the first quarter, Deutsche Bank said in an earlier report that apartment and villa rents continued to rise in March this year.

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