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Rentals in Dubai fell 2.7 per cent in the first quarter 2016, with Cluttons, a property consultancy, predicting another three to seven per cent decline this year.

“It is our expectation that rents will decline in general by a further 3 to 5 per cent this year, on average, with the top end of the property spectrum seeing more significant corrections of 5 to 7 per cent,” company Head of Research Faisal Durrani said in its Dubai Spring 2016 Residential Property Market Outlook.

The decline expectation is weakness in the jobs market, particularly if there is a spill over into sectors beyond finance and banking.

Villa rents fell by 1.8 per cent in the first quarter, leaving them 2.8 per cent down in the first quarter 2016 compared with first quarter 2015, while apartments declined 4.1 per cent during the period, 4.7 per cent year-on-year.

# Property price down

Prices fell by an average of 3.1 per cent during 2015, with residential values declining by another 2.2 per cent during the first quarter 2016.

This marks the “strongest” quarterly decrease in average residential values in five years and the seventh consecutive quarterly decline, highlighting the challenges faced by both the apartment and villa sales markets.

“We’ve been carefully monitoring the declining residential values over the past two years, but the persistent headwinds to local and global economic growth are continuing to erode overall demand and capital values are still softening, albeit at a slightly quicker rate,” Durrani said.

In the villa market for example, values at the end of first quarter 2016 stood at an average of close to Dh1,375 per square feet (psf), a 3 per cent decline since the end of 2015. Villa prices are down nearly 7 per cent on a year-on-year basis.

Looking back at 2015, the market registered a 5.6 per cent fall in prices (Cluttons predicted a drop of between 5 and 7 per cent in 2014). During 2016, it expects further decline of around 5 per cent on average, with some villa submarkets likely to see price falls of up to seven per cent.

# Apartment segment resilient

Apartment values showed greater resilience during the first quarter, with marginal declines across the board. Mid-range apartments at Business Bay registered a 12.8 per cent decline in average prices to Dh1,068 psf, several submarkets saw values stagnate in the 12 months to the end of the first quarter, including more affordable locations such as International City, Jumeirah Lake Towers, Discovery Gardens and the International Media Production Free Zone.

The resilience of values in such locations demonstrates the emphasis being placed by buyers on areas they perceive to offer the best value for money, with homes priced between Dh650 and Dh750 psf and Dh1,300 and Dh1,400 psf being in most demand.

# Oversupply?

Cluttons data shows that, overall, the supply pipeline’s expansion appears to have slowed, with no major shift in forecasts expected for the next three years. During 2016, the consultancy expects 7,058 units to complete, followed by a further 10,299 deliveries in 2017. The number of handovers is expected to rise to 16,026 in 2018, before dipping back to 9,786 in 2019.

“The number of villa and apartment handovers between now and 2018 is still quite evenly split. The overall stabilisation in the projected rate of handovers bodes well for the market as it hints at the potential for strong value rises once the planned residential handovers are absorbed by the market in two to three years’ time,” said Richard Paul, Head of Residential Valuations at Cluttons UAE.