September 7, 2009

Dubai apartment prices fell 17 percent in the second quarter, while villa prices plunged 24 percent, Landmark Advisory said on Sunday.

Demand was considerably stronger for villas, which accounted for 73 percent of all residential sales.

Since peaking in the fourth quarter, Dubai villa and apartment prices have declined by 44 percent and 36 percent, respectively, according to the data.

Average apartment rents in Dubai fell 23 percent in the period while villa rents declined 19 percent

In the leasing market, Dubai landlords have pushed up rents temporarily by withholding properties from the leasing market, but in doing so they are only extending an inevitable decline, Landmark said.

“Landmark Advisory is observing an unexpected, albeit marginal, upsurge in rents across Dubai. At the same time, leasing inventories and listing volumes have fallen noticeably,” a team of analysts wrote in a research note.

“Landlords are de-listing or forgoing listing their properties, either due to dissatisfaction with current rent levels, or because they are on vacation during the summer. Either way, the result is a marginal average increase in rents at a time when fundamentals should be dictating the opposite trend.”

Since peaking in the third quarter of last year, villa rents have fallen 31 percent, while apartment rents are down 29 percent since their peak in the fourth quarter.

“Disjointed lending practices continue widening the supply-demand gap,” the real estate consultant said.

“Residential sales demand is restricted by high borrowing costs and credit scarcity, while continued building is incentivized by relatively lower capital costs on construction loans.”

The Dubai office market is entering a period of “massive over-supply” at a time when demand is falling, it said.

Office sale prices declined 12 percent in the quarter and are down 42 percent from their peak, while office rents fell by an average of 10 to 15 percent.

To absorb the office supply delivered in 2009, Dubai’s economy would have had to generate 85,000 to 90,000 new office jobs, which would mean a 20 to 30 percent population increase, according to the report.

“Even under normal circumstances, this growth rate would be virtually impossible. Poor planning has created a supply glut that will take many years to resolve. The economic downturn is only part of the problem.”

Average listing prices for Abu Dhabi’s main residential developments were 10 to 12 percent lower but appeared to be stabilising.

Buyers remained focused on nearly completed developments, such as Al Reef Villas and Marina Square.

Apartment and villa rents in the UAE capital fell by an average of 10 percent, with low quality units more affected than high end developments, and are likely to continue falling in the third quarter as supply increases.

Low quality offices registered a 10 to 25 percent rental decline and saw vacancy rates rise.

The average number of cheques accepted by Dubai landlords in the second quarter was three, but is likely to keep rising, the report said.

“While some reports had claimed instances of landlords accepting up to 12 cheques, the second quarter was the first quarter in which Landmark registered such a transaction. Landlords still prefer between one and six cheques, with four cheques becoming increasingly common.”

The most popular areas for apartment rentals in the period were the Dubai Marina (26 percent), Jumeirah Lake Towers (19 percent), and International City (19 percent), which had only accounted for 2 percent of rentals in the previous quarter.

The exodus of expatriate workers from Dubai has been partly offset by a stream of relocations from Sharjah and Abu Dhabi, resulting in a smaller net population effect than originally feared.

But using future school enrolment figures as an indicator of the decline can be misleading, since many parents may have chosen to keep their children officially enrolled in case they are able to find a new position before the end of summer, Landmark said.

Source: Arabian Business