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Dubai property prices, rents to face downward pressure in 2016-17

Sales prices and rental rates in Dubai are expected to come under pressure over the coming 12 to 18 months as substantial supply is planned to be handed over, according to consultancy Asteco.

It said in a new report that subdued rents could affect rental rates in the Northern Emirates as any prolonged declines in Dubai, particularly in rental values, typically affect Sharjah and Ajman.

In contrast, Asteco said Abu Dhabi has a more limited amount of supply in the pipeline due for completion during 2016. As a result, although vacancy levels are likely to come under pressure, pushing rental rates down, this is expected to be to a lesser extent compared with Dubai.

Asteco added that the real estate sector in both Dubai and Abu Dhabi continues to offer attractive post tax returns to investors when compared with other global cities over the medium to long term.

Despite the numerous property launches in Dubai over the past few years, Asteco said it is likely that a substantial proportion of these projects will be curtailed due to market conditions, which will allow stock, currently under construction and due for delivery in the next 2 to 3 years, to be absorbed.

Government initiatives totalling some AED300 billion have been announced and will be spent on diversification in sectors such as education, health, energy, transportation, space, and water with the objective to build a knowledge-based economy.

These efforts are likely to increase the percentage of knowledge workers into the country to 40 per cent by 2021, thereby driving demand for real estate in all emirates, the Asteco report said.

It added that major government infrastructure projects are already committed, such as the Dubai World Central (DWC), Al Maktoum International Airport and Expo 2020, which will all continue to create employment opportunities and therefore drive demand for housing in the medium to long term.

Asteco said Dubai’s property sales market in 2015 was challenged particularly by the strong dollar and a generally negative global economic outlook, which affected investment appetite from traditional overseas buyers, especially from Europe and Russia.

The result was a steady decline in Dubai’s property values and transaction levels throughout the year for both residential and commercial sectors.

The report said Dubai’s off-plan market suffered the most, particularly for product launches in secondary locations by third party developers, despite attractive incentives offered in terms of extended payment plans and price reductions.

Even major master developers, who enjoyed some success in the first half of 2015, experienced significant drops in sales volumes in the second half of the year, it added.

The overall negative sentiment in the Dubai market also affected sales in the Northern Emirates, which remained slow, Asteco said, especially in Ras Al Khaimah.

The report also said regulatory issues also affected the market specifically the loan-to-value limits imposed on expatriate buyers in the market. In Dubai, this was compounded by the increase in transfer fees and, more recently, the timing for payment of these transfer fees.

While reduced government spending also affected the Abu Dhabi market, the emirate experienced stable sales prices and continued rental growth, as demand, albeit more subdued, continued to outstrip supply in specific market segments, Asteco added.

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