Demand for smaller, affordable units will put pressure on prices this year
If we reflect on recent market activity, Dubai is nearing a point of maturity and stabilisation over recent years, while following an upward trend in many areas of the emirate. The property market has performed well following the implementation of numerous mechanisms designed to support developers, tenants and landlords. Along with the trends associated with a maturing market, the positive sentiment seen last year is set to continue this year.
As a whole, the market today is far more attractive to investors with further relaxation of payment plans, reductions in down payments and a wider availability of post-completion plans. Potential buyers, including speculators and investors, often have the option to negotiate with developers to tailor finance products to their specific needs and increase the likelihood of investment.
The end-user market is improving, too, with more and more people choosing to buy property, especially those with a long-term view on living in Dubai.
However, this year will be defined by tenants who are demanding smaller, more affordable units, naturally placing pressure on rates across the board at a time when supply is increasing ahead of the World Expo 2020.
In Jumeirah Village Circle and Dubai Sports City, rates increased 2 per cent and 3 per cent respectively in the third quarter, with Sports City also recording the highest growth over the year at 13 per cent, attributed to the increased demand for affordability and the limited number of units.
Where it hurts
Oversupply in established areas such as Business Bay triggered a 5 per cent decline in the third quarter due to the same combination of new supply and budget-conscious tenants. This will continue to cause problems in the traditionally high-end segment next year.
Stock delivered in the coming years will continue to place downward pressure on the market and could see landlords struggling to demand higher rates. The year will also see the launch of several highly anticipated upscale districts, all with residential components. These will include the continued handover of City Walk, the completion of Jumeirah Beach Residence’s Bluewaters, the initial launch of the Dubai Water Canal projects and the completion of a number of Emaar projects in Downtown Dubai.
With substantial supply targeted to a narrow cross-section of the market, the environment will be challenging and overall growth is likely to be stunted in some areas. This is a continuation of what was witnessed last year when around 9,000 villas and 13,000 apartments were delivered, again, placing downward pressure on rents. The next 12 months will see a limited number of affordable options coming to market, which could stabilise the balance and still create modest levels of growth. However, many affordable properties are not expected to be completed before 2018 or 2019.
With more supply due to enter the market over the next few months, there seems to be little potential for both rental and sales prices to grow, except within select developments. This places pressure on rents in the less-established and more remote communities.
The volume of new units will also force landlords to become more competitive and we have already seen some landlords increase the number of rental payment instalments.
As these trends play out, the long-term benefits will become apparent and Dubai will be well-positioned to build a reputation for being an affordable place to live and work.
The remainder of the decade will be played out under similar conditions as the Expo 2020 adds an expected 70,000 units to the supply pipeline. These will comprise a mix of luxury and affordable units around Al Maktoum International Airport (AMIA) and the
Expo 2020 site, which have seen strong interest driven by location and attractive price points and
Additional project launches are expected throughout the year, again related to Expo 2020 and the continued development of AMIA, which is intended to accommodate Emirates Airlines operations in 2025. If all these projects come to fruition, the negotiating power will be firmly in the hands of tenants and buyers.
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