Why Dubai, Abu Dhabi residents can expect rental decline?
Supply of 12,000 to 18,000 new housing units in Abu Dhabi and Dubai are likely to exert downward pressure on rentals in 2016, a property expert from JLL, a global real estate consultancy, told Emirates 24|7.
“In reality not all of these units will be completed – as we mention in our report, the materialisation rate in the UAE has been low in recent years – with between 30 per cent and 50 per cent of the dwellings proposed by developers actually materialising.
“On this basis, a more realistic estimate of completions would be between 12,000 and 18,000 in 2016,” said Craig Plumb, Head of Research at JLL Mena.
Dubai developers, the consultancy says, are expecting delivery of 26,000 units this year, while the figure stands at 10,000 units in Abu Dhabi.
Though the level of new supply will be still some way above that in 2015 it is likely to result in further downward pressure on rents, at least over the first half of 2016, he asserted.
This website reported that rents as per the 2016 update of Dubai’s Real Estate Regulatory Agency’s rental index, rates have either softened or remained stable across freehold and leasehold communities.
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In 2015, Abu Dhabi and Dubai witnessed completion of only 9,000 residential units in 2015, less than half of the number completed in 2014, JLL said due to decline in numbers due to developers responding to more subdued market conditions and tightened liquidity, which the consultancy expects will continue into 2016.
The residential sales market has been affected by a decline in investor sentiment driven by lower oil prices and a slowdown in government spending, as well as regional geopolitical unrest, while US dollar strength is making UAE real estate more expensive for overseas investors.
Plumb said: “Following a rapid increase of residential rents and prices between 2012 and 2014, the market has now clearly stabilised, with sales prices falling in Dubai and remaining stable in Abu Dhabi during 2015 – but with a significant decline in transaction volumes in both markets.
“Prices softened by around 11 per cent in 2015 according to Real Estate Regulatory Agency in the Dubai residential market and are expected to decline further over the next six months.”
A slowdown in the pace of economic growth also affected the rental market although with supply also generally subdued, there has been a lesser impact on residential rents compared to sales prices with residential rentals in Dubai falling marginally (by around 3 per cent) and rents in Abu Dhabi increasing marginally over the year.
David Dudley, International Director and Head of Abu Dhabi Office at JLL Mena said: “The general trend during 2015 has been a slowdown in demand – largely driven by a reduction in government spending and investor sentiment – but with limited new supply, market conditions have remained stable.
“The slowdown in demand during 2015, balanced with a slowdown in supply completions led to a reduction in rental growth – with prime rents increasing 4 per cent in the first quarter of 2015 and remaining stable for the rest of the year,” Dudley said.
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