These new Dubai districts offer the world’s best rental returns

Some of Dubai’s newer freehold districts offer property investors among the highest yields globally, despite a difficult 2016 for the emirate’s rental and sales markets, a pioneering report by Propertyfinder Group shows.

The report revealed that apartments in most of propertyfinder’s top 20 Dubai neighbourhoods posted small sales price declines this year, including JBR which recorded a fall of 2.4 per cent; Dubai Marina a fall of 2.8 per cent; and Downtown a fall of 3.3 per cent. However, Silicon Oasis, Motor City, and Business Bay made small gains. These movements, which don’t necessarily lead to similar changes in rents, have impacted yields. Downtown’s 5.5 per cent yield contrasts with the similarly desirable locations of Dubai Marina and Palm Jumeirah, which both give over six per cent.

“The Downtown price decline has helped improve the rental yield, which is looking sluggish compared to other apartment options ,” Lukman Hajje, Propertyfinder group chief commercial officer, says.

“These are world-leading rental yields, but these communities are far from complete, with a large scale of development scheduled over the next 5-10 years,” says Hajje. “More stock will come online, suitable for budget-conscious purchasers and renters but conversely, as the area becomes more developed it will offer more for both owners and renters.”

That buy-to-let investors achieve a better return in areas typically accommodating lower income workers indicates there is price floor for renting property in Dubai, which does not necessarily track sales price movements, while lower yields in high-end districts suggest buyers there paid a premium that tenants are unwilling or unable to meet.

“The lower end emerging apartment communities saw signs of decline in for-sale properties as a large number of new and off-plan projects with completed stock in these areas entered the competition,” the report states. “However, these same communities are now offering rental yields of over nine per cent, which makes them very interesting to high yield seeking investors.”

Villas typically offer lower yields, although Arabian Ranches and The Springs outperform many apartment districts in providing yields of over 6.4 per cent, roughly double the more exclusive neighbourhoods of Palm Jumeirah, and Emirates Hills.

“The general rule is the larger and more expensive the villa, the lower the rental yield,” Hajje informed.

In terms of yield changes from January-August, Jumeirah Village Circle achieved by biggest increase among villas, rising two percentage points to 8.0 per cent, followed by Arabian Ranches and the Lakes, which both gained one percentage point. Emirates Hills endured the biggest yield decline, falling from 3.74 per cent in January 2016 to 3.04 per cent in August of the same year. Yields rose in 10 of the 15 villa communities in which there was comparative data.

Apartments performed less well, with yields near-flat in most communities, while Discovery Gardens and International City both suffered declines of more than two percentage points.

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