Dubai Real Estate Update

Dubai residential property prices ease at a slower rate 

• Residential property prices declined in Apr 2017, but at a slower pace than in the same month last year.  Phidar Advisory’s Dubai 9/5 House Price Index, which is based on DLD data but includes only nine apartment communities and five villa communities in investor zones in Dubai, showed apartment prices down -4.0% y/y and villa prices down -11.3% y/y at the end of April. On a m/m basis, the price decline for villas in April was -0.8% per month compared with -1.4% per month in the same month in 2016. For apartments however, prices rose 1.3% per month in Apr vs -1.4% per month in April 2016.  Apartments account for about 90% of residential real estate transactions in Dubai.
• The lower-priced segments of the market have fared better than the luxury (premium) segment. Low and mid-range (standard and standard-plus) apartments were more resilient in April, down by -1.4% and -0.3% y/y, respectively, while standard villas saw prices decline only -2.0% y/y for the same month. While there is evidence that residential real estate prices may be stabilizing, higher interest rates, declining rents and increasing supply are likely to remain headwinds for the sector this year. The strength of the USD still remains a constraint on demand, particularly for foreign investors.  

Transaction volumes higher in Jan-Apr 17 compared with Jan-Apr 2016

• The slower contraction in residential real estate prices over the first four months of 2017 has been accompanied by higher transaction volumes in all areas of Dubai. This has been particularly evident in the apartments sector. Overall transaction volumes increased by 18.2% y/y in Jan-April 2017 compared with -27.7% decline recorded in Jan-Apr 2016. On an annual basis, the total number of sales was also up by 1.4% y/y in April due to higher villa transactions (1.9% y/y). The number of apartment sales recorded in December was also up by 1.3% y/y for the same period. We note however that as we approach the summer months we wouldn’t be surprised to see some softness in the monthly transaction data as real estate activity is typically quitter over that period. 

• Looking at the areas included in Phidar Advisory’s 9/5 Index, overall transaction volumes have fallen by -7.4% y/y in Jan-Apr 2017, mainly driven by the significantly lower transaction volumes on villas. With most of the activity in the high-range (or premium) segment for apartments and the standard segment for villas, affordability is still a constraint but there is demand for residential properties at the lower priced end of the market. 

Rental yields remain high in Apr 2017 

• Rents in the Dubai 9/5 Index areas have declined at a slower pace on an annual basis in April, more or less aligned with the annual fall in sales prices. Apartment and villa rents were down in April by -9.0% and -9.4% y/y, respectively. Yields on apartments fell marginally in April at 7.4% averaging 7.5% in Jan-Apr 2017 compared with 7.8% in Jan-Apr 2016. Separately, yields on villas remained unchanged in April at 4.8% averaging the same figure both in Jan-Apr 2017 and Jan-Apr 2016. 

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