Property sales prices and rents in Dubai are set to remain under downward pressure during 2021 with apartment districts expected to face further headwinds, according to new research.
Consultants Cushman & Wakefield Core said established villa districts that saw strong take-up over the second half of 2020 and now have limited supply are expected to see price resilience this year.
Cushman & Wakefield Core's report also predicts further flexibility in lease terms as the market largely remains tenant-friendly with most landlords willing to negotiate to retain tenants, particularly in apartment districts.
With household incomes expected to remain under pressure, the report also foresees most tenants remaining price-sensitive during this year.
Cushman & Wakefield Core added that secondary sales transactions are expected to remain steady as underlying demand is supported by lower capital values and demand drivers such as financial, visa and social reforms.
While oversupply concerns persist in the near term, Cushman & Wakefield Core said, with ample new supply and unabsorbed inventory, new launches were at the lowest level in 2020 compared to the last eight years and are expected to further reduce in 2021 as developers re-strategise and focus on absorption of existing inventory.
Prathyusha Gurrapu, head of Research and Advisory at Cushman & Wakefield Core, said: “While disrupting the real estate market, the pandemic has also accelerated reforms. Measures to curb supply are gradually showing effect with major stakeholders collectively addressing Dubai’s oversupply.
“Government-led demand drivers including a range of visa reforms, low-interest rates and attractive LTV ratios for first-time buyers are supporting and sustaining demand. These steps have also resulted in a slowdown in the off-plan market and relative resilience in the secondary market with record transaction volumes seen, largely led by end-user buyers.”
She added: “Although the impact of COVID-19 has pushed price recovery further ahead, we are starting to see resilience in sales prices as values reach development costs in many districts. Villa districts have particularly fared well due to rising demand from occupiers requiring more space and open areas as they adjusted to changes in working arrangements. However, apartment districts maintain their downward trajectory and are yet to show signs of plateauing.”
Dubai saw nearly 36,000 units delivered in 2020 and Cushman & Wakefield Core conservatively forecasts nearly 39,000 units for 2021 although further revisions are expected as forecasts will inherently depend on buyer confidence and an uptick in market sentiment as developers continue to adjust to ongoing market conditions.
Despite a challenging 2020, secondary market transaction activity saw an increase of 7% over 2019 volumes, with significantly lower buying costs and a raft of government-led demand drivers being the biggest factors currently supporting transaction activity.
In fact, after the initial slump in April and May 2020 due to movement restrictions, December witnessed the highest monthly transaction volumes in two years.
Apartment districts continued to see sharp declines, with a few prime districts such as Downtown Dubai (-4%), Palm Jumeirah (-4%) comparatively bucking the trend.
The more affordable apartment districts such as Discovery Gardens, pictured above, (-15 percent) and Dubailand (-15%) have been the weakest performing areas over 2020.
Looking historically from the peak values of 2014, villas dropped nearly 31 percent while apartment districts dropped over 35 percent with older districts such as JLT and Discovery Gardens witnessing over a 40 percent drop over the last six years.
Gurrapu added: “The villa market has displayed relative levels of resilience with lower year-on-year declines due to evolving occupier needs in the wake of COVID-19. The Springs and The Meadows (+1%), Arabian Ranches (-3%), Palm Jumeirah (-4%) were the most resilient villa districts with nominal changes in year-on-year sales prices, bolstered by a strong Q4 transaction market performance.”
Residential rents
Rents in apartment districts, in general, have fallen sharper than villa districts with a higher share of apartment districts witnessing double-digit drops. The weakest performing apartment areas are Dubai Sports City (-19%) and Dubailand (-19%).
Villa communities witnessing the sharpest year-on-year declines are Jumeirah Village Circle (-13%) followed by Reem-Mira and The Villa in Dubailand (-11%). Prime villa locations like Palm Jumeirah (-4%) and Emirates Hills (-4%) have shown resilience in rental drops, particularly in the upper end of the market as high absorption witnessed over H2 2020 has resulted in limited stock currently available in the market.
From peak rents witnessed in 2014, villas dropped nearly 33% while apartment districts dropped over 40% with many districts displaying reductions over the 45% mark over the last six years.
As rents fall at a faster pace compared to sales prices, yield contractions have been witnessed across villas and apartment districts.
Cushman & Wakefield Core described COVID-19 as a "black swan event" that brought unprecedented challenges and dominated all business practices and occupier behaviour over 2020.
However, it added that Dubai outperformed most global cities as the government’s efficient measures to mitigate the impact of the virus while maintaining business continuity, providing multiple stimulus packages to aid the economy and most importantly the recent vaccine roll-out has bolstered the market sentiment and paved the way for a stronger 2021.