With more than 21,700 units delivered last year, the highest number of deliveries since 2011, sales prices are expected to remain under pressure this year. However, a report by UAE-based real estate consultancy Cushman & Wakefield Core notes that transaction volumes in the ready sales market (both for cash and mortgage transactions) have seen a steady increase over the last three years. Also, despite overall softening of sales prices, the average unit price in the secondary sales market has also shown resilience — both trends contrary to what is seen in the off-plan sales market. This indicates strength in the secondary market where offer and demand are finding an equilibrium and more buyers are opting for ready units instead of off-plan units, as they look to either transition to ownership and save on rents or look for immediate rental yields.
Speaking about areas that have seen the greatest softening, Prathyusha Gurrapu, head of research and advisory at Cushman & Wakefield Core says, “Sales prices have softened across the board. Areas such as villas in Jumeirah Park [18 per cent] and apartments in Dubai Land [15 per cent], Discovery Gardens [14 per cent] and Dubai Sports City [13 per cent] have witnessed the sharpest drops in the last 12 months. Prime areas such as Palm Jumeirah [3 per cent] and Dubai Marina [8 per cent] have seen a lower decrease and displayed relative resistance, while Downtown Dubai continues [12 per cent] to be under pressure from existing and upcoming stock.”
Good time to close a deal The market could reach an equilibrium over the next 12–18 months, with price falls slowing and a plateau being reached, according to Declan King, group head of real estate at Valustrat. “It is possible that many properties will be worth less at the end of this year,” he says. “For owner-occupiers getting the right property in their preferred area, this is a good time to do a deal.”
However, Richard Waind, director of sales at Better Homes, also notes that a further 25,000-30,000 units are to be handed over this year. “There is good value in today’s market. We have not seen the end of supply. Also, what we see today is that while in 2017, 70 per cent of the market was off-plan and 30 per cent was ready property, today the market has evened out with a 50-50 parity.”
Value in secondary market King echoes the value in the secondary market. “As a result of the price fall in the secondary market, a villa in the Lakes, Springs or Meadows that four years ago hardly had any demand, presents a good option for buyers even if they have to upgrade the kitchen, wardrobe or the garden,” he says. “People are getting back in these areas because of the price points.”
According to research from ValuStrat, many tenants have moved into home ownership in recent years. “Tenants are encouraged with monthly mortgage repayments being less than their rent. However, one big obstacle is the amount of deposit required to buy. This is due to prudent Central Bank loan-to-value ratios… In effect this means that many buyers have to stump up almost 35 per cent of the purchase price to cover down payments and other costs of buying a home.”
For off-plan, check supply pipeline For those buying off-plan, King says it’s important to trust the name and history of developers and how committed they are to completing their projects. “It’s also important to check out the competition — what is the kind of supply that will come into the area? So whether I want to buy the house to live for a few years and then sell it or invest in a property to rent it out, I need to know how many other landlords are going to rent out at the same time. So if there is a tower of 400 units in the vicinity, 400 other landlords would be doing the same thing at the same time. This will obviously create a downward pressure on rents. So it’s very important to look at the supply pipeline,” he says.
Based upon the real estate impact of the new Al Maktoum International Airport, continued success of nearby Jafza and DIP areas, tourist drivers such as Dubai Parks and Resorts, and of course the Expo 2020 and the re-purposing of the site thereafter and the impact of legacy investments such as the Metro extension, King believes strongly in the long-term success of the Dubai South area.
Capital preservation Capital preservation is one of the main concerns for existing landlords and potential buyers, admits Gurrapu. “Property owners who bought during the 2009-12 period would still see capital appreciation, while acquisitions over the 2012-14 peak values would be facing a reduction of equity.”
Waind advises against selling of assets generally. “Prices have been going down in the last four years, so you will be selling at a loss. But at the same time different people have different needs and some people might be looking to liquidate an asset,” he says. However, this is the right time to sell a smaller property to buy a bigger one.
Rents under pressure
The Cushman & Wakefield Core report also says that in the rental market, the older central built stock continues to be under pressure to retain its novelty, with occupier preference shifting to outer areas where newer and competitively priced options are increasingly becoming available. “We expect rental prices to remain under pressure in 2019 and the rental market to continue being tenant friendly,” says Waind. “We expect landlords to continue offering favourable leasing terms such as reducing rents during renewals to retain tenants and maintain occupancies, while some also open to multiple check payments.”