Rents have started to increase in selective areas of Dubai after the pace of rental income slowed down significantly in 2011, but will continue to fall in fringe communities, according to a new report.
“The pace of decline in Dubai rents slowed down significantly in 2011 and is starting to shift gradually into selective increases in areas of higher quality and demand,” Global Investment House (GIH) said in a new GCC real estate sector report released on Sunday.
“We expect improvements in rental rates to be capped in the short term by new supply and declining rents in the outskirts of the city.”
Asteco, a real estate consultancy, in its first quarter 2012 report, mentioned that overall rental rates for apartments and villas rose by one per cent on average. Downtown Dubai rents rose five per cent, followed by Jumeirah Beach Residence (JBR) at four per cent and Jumeirah Lakes Towers (JLT) at three per cent. Rents in Meadows and Green community climbed by three per cent, respectively, while Arabian Ranches reported a two per cent jump.
In Dubai, GIH estimates the market is currently 20 per cent oversupplied that means 67,000 units are currently vacant.
“We expect this figure to increase as an additional 20,000 units are scheduled to enter the market in 2012, representing a six per cent increase on the current stock,” the report said.
Real Estate Regulatory Agency CEO Marwan bin Ghalitha has reportedly said 16,000 new units are likely to be released into the market this year.
Residential property prices, however, are bottoming out this year, but a noticeable recovery remains offsite in the near term.
“Prices are entering a stagnant phase of stabilisation with selective price increases; a pattern already materialising in well-established areas and for selective properties,” GIH said. Dubai villa and apartment segments have seen minor price increases in the first quarter after stabilising in in the last two quarter of 2011.
Property sales in Dubai soared 54 per cent as value rose 32 per cent in the first quarter of 2012 compared to same period last year, Dubai Land Department data has revealed. A total of 654 land sales, comprising apartments, villas and townhouses, were registered compared to 426 year-on-year. In value terms, a 32 per cent increase to Dh5.24bn was registered against Dh3.96bn in Q1 2011.
Knight Frank said last month that real estate in Dubai had not only stabilised, but prices went up 2.3 per cent on average in the last quarter of 2011.
Asteco also said property prices had stablised in Dubai with certain villa communities such as Palm Jumeirah, Arabian Ranches and the Springs already witnessing price hikes of up to nine per cent.
Abu Dhabi under pressure
GIH believes Abu Dhabi will remain pressured by the growing vacancy rates and incessant supply.
“In Abu Dhabi prices are still declining as new supply enters the market,” it said.
Villa prices declined seven per cent between first quarter 2011 and first quarter 2012, while apartment prices fell eight per cent during the same period. Quarter-on-quarter prices dropped five per cent.
“We expect further declines to materialise for at least the coming four quarters.”
In Abu Dhabi, vacancy rates are estimated at 15 per cent of fourth quarter 2011 stock of 195,000 units.
A fresh supply of 25,000 units is scheduled to enter the market this year, which has already impacted property prices in the first quarter 2012.
“We expect Abu Dhabi to be negatively affected by growing supply through to first quarter 2013 despite the current rationalisation in property delivery.”
Earlier this month, CB Richard Ellis, a global real estate consultancy, said rents in the capital had declined by 16 to 30 per cent in 2011 and are expected to continue their fall this year with 23,000 new units likely to enter market.
Rents are dropping on new supply and rental yields, currently at 7.2 per cent, are being compressed converging with Dubai yields, which GIH estimates at 6.6 per cent.