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Dubai property prices, rents may not rebound until 2018

Residential property prices continued to fall during the first half of 2016, with values expected to decline further until the end of 2017, according to a new report.

Phidar Advisory's latest Dubai residential research note said "soft demand" was behind the latest price drops rather than supply which has expanded slowly over the past 30 months.

During Q2, apartment lease rates declined 2.2 percent, while sale prices declined 3.7 percent, pushing gross yields up to 7.9 percent, according to Phidar House Price Index.

Lease rates for villas decreased 3.6 percent and sale prices declined 1.1 percent, which pushed yields down to 4.7 percent, it added.

Jesse Downs, managing director of Phidar Advisory, said: “The compression of villa yields is unsustainable and should slowly reverse in the coming year.

“Sale prices and rent declines for both villas and apartments will likely continue for the next 12 months, possibly up to 18 months,” she added.  

Downs also said that the strong US dollar is one of the biggest barriers to a Dubai real estate recovery. "Unfortunately, a strong dollar also is usually associated with a low oil price, signifying a double hit to the market,” she said.

In 2015, foreign nationals purchased over 80 percent of real estate investment in Dubai. From that portion, 82 percent was purchased from foreign nationals outside of the GCC, most of which are from countries with floating exchange rates.

In Q2, Phidar’s Dubai Real Estate Investment Demand Index  remained flat, on the back of a strong, but stable, US dollar.

Since mid-2014, currency fluctuations have created inflationary shocks for foreign buyers of Dubai real estate.

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