UAE residential market declines expected until year-end

Property values and rents in the UAE markets of Abu Dhabi, Dubai and Sharjah are set for further declines to the end of the year, according to real estate consultancy Cluttons.

Similarly to its office market report yesterday, the firm said redundancies in the oil and gas, banking and finance sectors had negatively impacted demand for residential property across the country.

Read: Further UAE office rent declines expected by year-end

Faisal Durrani, head of research at Cluttons, said economic factors including low oil prices and Brexit meant “we are still some way from the bottom of the market.”

Abu Dhabi had been particularly impacted by the performance of the oil and gas sector, he said, with further corrections still coming through at the top of the residential market.

In Dubai, meanwhile, the market is expected to stabilise by the end of 2017, due to the Expo 2020 effect, which will also impact Sharjah, but further softening is expected until then.

“Our forecasts however remain unchanged and on track, with Dubai likely to see residential values end the year down by between -5 per cent for apartments and -7 per cent for villas.”

In Q2, Cluttons said apartment values declined 0.6 per cent in Abu Dhabi, the first quarterly slip in three and a half years. The firm said average prices, hovering around Dhs1,300 psf would end the year about 3 or 4 per cent lower than the end of 2015.

Villa prices were down 4.9 per cent in the first six months of the year, now averaging below Dhs1,200 psf and will likely be down by 10 per cent compared to 2015 by year-end, Cluttons said.

Rental rates were expected to average up to 20 per cent lower on 2015 in the city’s residential investment zones, while apartment rents were expected to fall 3 to 4 per cent.

This followed predictions in Cluttons’ Spring outlook that reduced housing allowances and an oil-linked economic could lead to further declines in residential and office rents in the emirate this year.

Read: Abu Dhabi residential, office rental declines forecast as slump continues

In Dubai, Q2 values declined 2.4 per cent making for a total decline of 5.2 per cent in H1. Average apartment prices fell 3.6 per cent and villas declined 5.1 per cent. Sharper declines of 8.8 per cent and 7.9 per cent were seen at Palm Jumeirah and Discovery Gardens making them the weakest performing submarkets so far this year.

However, villas in The Lakes, The Springs and Arabian Ranches and apartments in Downtown Dubai and International City were more resilient.

Cluttons said rents in the emirate declined 4 per cent in Q2, raising the annualised decline to 6.6 per cent.

The gradual softening of property and rental values is expected to continue, but at a “slight rather than substantial” rate, according to Richard Paul, head of residential valuations for the firm in Dubai.

“Dubai’s diversified economy is likely to help curtail volatility in values and rents, with the rapidly approaching Expo 2020 expected to be a significant catalyst for residential demand,” he said.

Earlier this year, rival real estate consultancy JLL said Dubai’s office and residential rentals faced a “downward slope” following the United Kingdom’s exit from the European Union.

Read: Dubai office, residential rents face ‘downward slope’ following Brexit

Meanwhile, in Sharjah rents dipped 2.5 per cent in Q2, bringing rates 8.5 per cent lower than Q3 2015 as residents moved back to more affordable Dubai.

“Despite landlord’s efforts, with rents already down by just over 8 per cent so far this year, we have already exceeded our initial 2016 forecast of a 5 per cent decline on average,” said Suzanne Eveleigh, head of Cluttons Sharjah.

“We now expect rents to end the year 8 per cent to 10 per cent down on 2015 as the market rebalances and we work our way through the bottom of the current market cycle.”