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Dubai’s villas suffer more rental erosion

Dubai: Rents for apartments in Dubai’s freehold clusters have remained resilient all through the current downturn compared to their villa counterparts, which have seen declines of 3-12 per cent since Q1-15.

In comparison, the sharpest rental declines in apartment clusters have been in the range of 5-6 per cent, and experienced by the towers in DIFC Downtown, Dubai Marina and JBR (Jumeirah Beach Residence), according to a report issued by Core UAE, the real estate consultancy affiliated with Savills.

“Apartments in most districts displayed a marginal drop of 4 per cent or less,” the report notes. “However, The Greens and Business Bay were seen as exceptions with prices remaining constant, the former owing largely to its value-for-money products, central location and ease of connectivity while the latter attributed to its infrastructure and connectivity improvements.”

Clearly, for investors looking for an asset that can generate a higher return, they are better off with an apartments in Dubai than a villa. There is another factor weighing in their favour.

After the extended round of price softness — a process that started in mid-2014 — “Dubai is one of the most affordable cities in which to purchase a home compared to other major international hubs,” the report adds.

But “this makes it also one of the most expensive cities to rent, with gross rental yields close to 9 per cent.”

But for the average tenant subject to double-digit rental increases over the last four years, none of this matters. The negative vibes within the property market have failed to make much of a dent on rents. Coupled with the general sentiment over the slowing economy and its fallout — job losses and reduced consumer spending, among other things — it is giving Dubai’s residents a lot to mull over.

The market overall is in need of a boost and it will have to look to both external and internal factors to make that happen.

“A number of balancing factors such as the release of Iranian equity, a possible bounce in oil prices, government driven job creation, Expo 2020 and a growing pool of investors looking to re-enter the market at the right price and time, along with end users making a shift from renting to owning due to the penalising high level of yields, are likely to come in to play towards the end of the year,” the report states.

Fast facts

• Despite the best efforts of developers, Dubai’s residential market is likely to see only a further 9,000-10,000 units being delivered this year as against the 20,000 units plus that the more optimistic forecasts provide. Last year, it was around 8,000-9,000 new homes.

• Average property transactions in Dubai involving Gulf buyers averaged Dh3 million to Dh4 million, according to Core. Those bought by ‘Other Arabs’ and expatriates typically range between Dh1.8 million and Dh2.5 million. Pakistani buyers had the lowest average transaction value of Dh1.4 million.

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